Advertisement

The length of the trading day and trading volume

  • Mahmoud QadanEmail author
  • David Y. Aharon
Regular Article
  • 14 Downloads

Abstract

As the financial literature has documented, trading volume is generally affected by information releases, extreme returns, herd instinct, overconfidence, panic and volatility. In this study, we provide further empirical evidence that the extension of trading hours has a positive effect on trading volume. Using data from the last 12 years, during which the Tel Aviv Stock Exchange extended its trading hours on several occasions, we demonstrate that our findings hold true after controlling for proxies for world market returns and volatility, time trends, macroeconomic announcements and suicide attacks. We discuss several theories that may explain the results obtained. Furthermore, we show that cross-listed stocks attract more trading and explain the majority of the change in the volume of stocks traded. The findings may have implications for those who design policy for the exchange markets worldwide, because the majority of their revenues come from transactions and clearing fees.

Keywords

Extended trading Tel Aviv stock exchange Stock exchange revenues Trading hours Trading volume 

JEL Classification

G2 

Notes

References

  1. Admati, A. R., & Pfleiderer, P. (1988). A theory of intraday patterns: Volume and price variability. The Review of Financial Studies, 1(1), 3–40.CrossRefGoogle Scholar
  2. Adrian, T., Fleming, M., Shachar, O., & Vogt, E. (2017). Market liquidity after the financial crisis. Annual Review of Financial Economics, 9, 43–83.CrossRefGoogle Scholar
  3. Andersen, T. (1996). Return volatility and trading volume, an information flow interpretation of stochastic volatility. Journal of Finance, 51, 168–204.CrossRefGoogle Scholar
  4. Asem, E. (2007). Concentrated opening volume: market closure or strategic trading? Journal of Financial Research, 30(2), 321–334.CrossRefGoogle Scholar
  5. Asem, E., & Kaul, A. (2008). Trading time and trading activity: evidence from extensions of the NYSE trading day. European Journal of Finance, 14(3), 225–242.CrossRefGoogle Scholar
  6. Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21, 129–151.CrossRefGoogle Scholar
  7. Berry, T. D., & Howe, K. M. (1994). Public information arrival. Journal of Finance, 49(4), 1331–1346.CrossRefGoogle Scholar
  8. Bessembinder, H., & Seguin, P. J. (1992). Futures-trading activity and stock price volatility. The Journal of Finance, 47(5), 2015–2034.CrossRefGoogle Scholar
  9. Bessembinder, H., & Seguin, P. J. (1993). Price volatility, trading volume, and market depth: Evidence from futures markets. Journal of Financial and Quantitative Analysis, 28(01), 21–39.CrossRefGoogle Scholar
  10. Brock, W. A., & Kleidon, A. W. (1992). Periodic market closure and trading volume: A model of intraday bids and asks. Journal of Economic Dynamics and Control, 16(3–4), 451–489.CrossRefGoogle Scholar
  11. Chan, K., & Chan, Y. C. (1993). Price volatility in the Hong Kong stock market: A test of the information and trading noise hypothesis. Pacific-Basin Finance Journal, 1(2), 189–201.CrossRefGoogle Scholar
  12. Cheng, L. T., Jiang, L., & Ng, R. W. (2004). Information content of extended trading for index futures. Journal of Futures Markets, 24(9), 861–886.CrossRefGoogle Scholar
  13. Chordia, T., Roll, R., & Subrahmanyam, A. (2001). Market liquidity and trading activity. Journal of Finance, 56(2), 501–530.CrossRefGoogle Scholar
  14. Clark, P. K. (1973). A subordinated stochastic process model with finite variance for speculative prices. Econometrica: Journal of the Econometric Society, 41(1), 135–155.CrossRefGoogle Scholar
  15. Coffee, J. C. Jr. (2002). Racing towards the top? The impact of cross-listings and stock market competition on international corporate governance. Columbia Law Review, 102(7), 1757–1831.CrossRefGoogle Scholar
  16. Copeland, T. (1976). A model of asset trading under the assumption of sequential information arrival. Journal of Finance, 31, 1149–1168.CrossRefGoogle Scholar
  17. Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. Journal of Finance, 46(4), 1325–1359.CrossRefGoogle Scholar
  18. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431.Google Scholar
  19. Eldor, R., & Melnick, R. (2004). Financial markets and terrorism. European Journal of Political Economy, 20(2), 367–386.CrossRefGoogle Scholar
  20. Erenburg, G., Kurov, A., & Lasser, D. J. (2006). Trading around macroeconomic announcements: Are all traders created equal? Journal of Financial Intermediation, 15(4), 470–493.CrossRefGoogle Scholar
  21. Flannery, M. J., & Protopapadakis, A. A. (2002). Macroeconomic factors do influence aggregate stock returns. Review of Financial Studies, 15(3), 751–782.CrossRefGoogle Scholar
  22. Fleming, M. J., & Remolona, E. M. (1999). Price formation and liquidity in the US Treasury market: The response to public information. Journal of Finance, 54(5), 1901–1915.CrossRefGoogle Scholar
  23. French, K. R., & Roll, R. (1986). Stock return variances: The arrival of information and the reaction of traders. Journal of Financial Economics, 17(1), 5–26.CrossRefGoogle Scholar
  24. Frino, A., & Hill, A. (2001). Intraday futures market behavior around major scheduled macroeconomic announcements: Australian evidence. Journal of Banking & Finance, 25, 1319–1337.CrossRefGoogle Scholar
  25. Gallant, A. R., Rossi, P. E., & Tauchen, G. (1992). Stock prices and volume. Review of Financial Studies, 5(2), 199–242.CrossRefGoogle Scholar
  26. Garbade, K. D., & Silber, W. L. (1979). Dominant and satellite markets: a study of dually-traded securities. Review of Economics and Statistics, 61(3), 455–460.CrossRefGoogle Scholar
  27. Geoffrey, G., & Chowdhury, M. (1996). Information noise and stock return volatility: Evidence from Germany. Applied Economics Letters, 3(8), 537–540.CrossRefGoogle Scholar
  28. Gervais, S., Kaniel, R., & Mingelgrin, D. H. (2001). The high-volume return premium. The Journal of Finance, 56(3), 877–919.CrossRefGoogle Scholar
  29. Girard, E., & Biswas, R. (2007). Trading volume and market volatility: Developed versus emerging stock markets. Financial Review, 42(3), 429–459.CrossRefGoogle Scholar
  30. Harris, L. (1986). A transaction data study of weekly and intradaily patterns in stock returns. Journal of Financial Economics, 16, 99–117.CrossRefGoogle Scholar
  31. Harris, L. (1987). Transaction data tests of the mixture of distributions hypothesis. Journal of Financial and Quantitative Analysis, 22(2), 127–141.CrossRefGoogle Scholar
  32. Harris, M., & Raviv, A. (1993). Differences of opinion make a horse race. The Review of Financial Studies, 6(3), 473–506.CrossRefGoogle Scholar
  33. Hong, H., & Wang, J. (2000). Trading and returns under periodic market closures. Journal of Finance, 55(1), 297–354.CrossRefGoogle Scholar
  34. Houston, J. F., & Ryngaert, M. D. (1992). The links between trading time and market volatility. Journal of Financial Research, 15(2), 91–100.CrossRefGoogle Scholar
  35. Hua, R., Liu, Q., & Tse, Y. (2016). Extended trading in Chinese index markets: Informed or uninformed? Pacific-Basin Finance Journal, 36, 112–122.CrossRefGoogle Scholar
  36. Jain, A., Biswal, P. C., & Ghosh, S. (2016). Volatility–volume causality across single stock spot–futures markets in India. Applied Economics, 48(34), 3228–3243.CrossRefGoogle Scholar
  37. Jain, P. C., & Joh, G. H. (1988). The dependence between hourly prices and trading volume. Journal of Financial and Quantitative Analysis, 23(3), 269–283.CrossRefGoogle Scholar
  38. Jennings, R. H., Starks, L. T., & Fellingham, J. C. (1981). An equilibrium model of asset trading with sequential information arrival. Journal of Finance, 36(1), 143–161.CrossRefGoogle Scholar
  39. Karolyi, G. A. (1998). Why do companies list shares abroad? A survey of the evidence and its managerial implications. Financial Markets, Institutions & Instruments, 7(1), 1–60.CrossRefGoogle Scholar
  40. Karolyi, G. A. (2006). The world of cross-listings and cross-listings of the world: Challenging conventional wisdom. Review of Finance, 10(1), 99–152.CrossRefGoogle Scholar
  41. Karpoff, J. M. (1987). The relation between price changes and trading volume: A survey. Journal of Financial and Quantitative Analysis, 22(1), 109–126.CrossRefGoogle Scholar
  42. Kyle, A. S. (1985). Continuous auctions and insider trading. Econometrica: Journal of the Econometric Society, 53(6), 1315–1335.CrossRefGoogle Scholar
  43. Lee, H. C., Chien, C. Y., Chen, H. L., & Huang, Y. S. (2009). The extended opening session of the futures market and stock price behavior: Evidence from the Taiwan Stock Exchange. Review of Pacific Basin Financial Markets and Policies, 12(3), 403–416.CrossRefGoogle Scholar
  44. Lee, B. S., & Rui, O. M. (2002). The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence. Journal of Banking & Finance, 26(1), 51–78.CrossRefGoogle Scholar
  45. Ljung, G. M., & Box, G. E. P. (1978). On a measure of lack of fit in time series models. Biometrika, 65, 297–303.CrossRefGoogle Scholar
  46. Lo, A. W., & Wang, J. (2000). Trading volume: definitions, data analysis, and implications of portfolio theory. Review of Financial Studies, 13(2), 257–300.CrossRefGoogle Scholar
  47. McInish, T. H., Shoesmith, G. L., & Wood, R. A. (1995). Cointegration, error correction, and price discovery on informationally linked security markets. Journal of Financial and Quantitative Analysis, 30(4), 563–579.CrossRefGoogle Scholar
  48. Newey, W. K., & West, K. D. (1987). Hypothesis testing with efficient method of moment’s estimation. International Economic Review, 28(3), 777–787.CrossRefGoogle Scholar
  49. Patel, S. A., & Sarkar, A. (1998). Crises in developed and emerging stock markets. Financial Analysts Journal, 54(6), 50–59.CrossRefGoogle Scholar
  50. Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.CrossRefGoogle Scholar
  51. Qadan, M., & Kliger, D. (2016). The short trading day anomaly. Journal of Empirical Finance, 38, 62–80.CrossRefGoogle Scholar
  52. Reese, W. A., Jr., & Weisbach, M. S. (2002). Protection of minority shareholder interests, cross-listings in the United States, and subsequent equity offerings. Journal of Financial Economics, 66(1), 65–104.CrossRefGoogle Scholar
  53. Shi, Y., Liu, W. M., & Ho, K. Y. (2016). Public news arrival and the idiosyncratic volatility puzzle. Journal of Empirical Finance, 37, 159–172.CrossRefGoogle Scholar
  54. Smirlock, M., & Starks, L. (1985). A further examination of stock price changes and transaction volume. Journal of Financial Research, 8(3), 217–226.CrossRefGoogle Scholar
  55. Sohn, S., & Zhang, X. (2017). Could the extended trading of CSI 300 index futures facilitate its role of price discovery? Journal of Futures Markets, 37(7), 717–740.CrossRefGoogle Scholar
  56. Wang, J. (1994). A model of competitive stock trading volume. Journal of Political Economy, 102(1), 127–168.CrossRefGoogle Scholar

Copyright information

© Eurasia Business and Economics Society 2019

Authors and Affiliations

  1. 1.Department of Business Administration, Faculty of ManagementUniversity of HaifaHaifa 3498838Israel
  2. 2.Department of Business AdministrationOno Academic CollegeKiryat OnoIsrael

Personalised recommendations