The length of the trading day and trading volume

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.

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Notes

  1. 1.

    Practitioners attributed that drop in trading volume to many factors. The leading one refers to the 2010 Dodd-Frank Act and the Basel III regulatory frameworks that reduced the banks’ ability and willingness to engage in the market and caused deep stagnation in the balance sheets of dealers (e.g., Adrian et al. 2017). The second factor refers to the diminishing role of high-speed traders, who use computer algorithms to take advantage of small price discrepancies and who have recently come to account for over half of all stock market activity. (http://www.nytimes.com/2012/05/07/business/stock-trading-remains-in-a-slide-after-08-crisis.html?_r=0).

  2. 2.

    The time difference between Tel Aviv and New York is generally seven hours. If the former advances the clocks by one hour before the US, or the US moves to daylight savings time before Israel, the time difference becomes eight hours.

  3. 3.

    http://ir.theice.com/~/media/Files/I/Ice-IR/annual-reports/2015/ice-annual-report-2015.pdf.

  4. 4.

    https://www.tase.co.il/Eng/Pages/Homepage.aspx.

  5. 5.

    http://www.shabak.gov.il/english.

  6. 6.

    We would like to thank an anonymous referee for raising this point.

  7. 7.

    The Tel Aviv Volatility Index, commonly termed the VIXTA, is derived from the option securities traded on the TASE. The VIXTA is calculated in a manner similar to that used by the CBOE to calculate the VIX.

  8. 8.

    Our data have relatively few outliers. This is because we use market rather than individual stock data. Anyway, we trimmed 5% of the tails of the dependent variable (2.5% from each side). This action guaranteed cleaning outliers in the other variables, since the majority of them took place during the 2008 crisis. By and large, the results were maintained. The results are not presented here but available upon request.

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Correspondence to Mahmoud Qadan.

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Qadan, M., Aharon, D.Y. The length of the trading day and trading volume. Eurasian Bus Rev 9, 137–156 (2019). https://doi.org/10.1007/s40821-019-00119-8

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Keywords

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

JEL Classification

  • G2