Trading session effects on stock returns and their conditional volatility

Firm-level evidence from a European Union accession country

Ercan Balaban*, Tolga Ozgen

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper primarily aims to test (i) the weak-form informational efficiency based on trading session effects on stock returns and their conditional volatility, (ii) the conditional total risk-return relationship and the systematic risk effects, and (iii) volatility persistence and asymmetry in volatility. We use firm level intraday data for two trading sessions with a two-hour lunch break from the Bourse Istanbul for the period 1995 to 2014. First, a strong result can be pronounced for a positive return effect for the second trading session compared to the first session. A similar positive effect is observed for the conditional volatility. Second, it can be concluded that only the systematic risk is priced for the great majority of the selected firms. Third, we cannot observe a significant asymmetry in the conditional volatility in most cases. Finally, it is founded that financial companies have a significantly higher systematic risk than industrial companies.

Original languageEnglish
Pages (from-to)264-271
Number of pages8
JournalPhysica. A, Statistical Mechanics and its Applications
Volume446
Early online date19 Nov 2015
DOIs
Publication statusPublished - 15 Mar 2016

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European Union
Stock Returns
volatility
Volatility
Union
Asymmetry
asymmetry
Persistence
Evidence
Business

Keywords

  • Asymmetric time varying volatility
  • Market microstructure
  • Risk-return relationship
  • Trading session effects
  • Turkey

ASJC Scopus subject areas

  • Condensed Matter Physics
  • Statistics and Probability

Cite this

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title = "Trading session effects on stock returns and their conditional volatility: Firm-level evidence from a European Union accession country",
abstract = "This paper primarily aims to test (i) the weak-form informational efficiency based on trading session effects on stock returns and their conditional volatility, (ii) the conditional total risk-return relationship and the systematic risk effects, and (iii) volatility persistence and asymmetry in volatility. We use firm level intraday data for two trading sessions with a two-hour lunch break from the Bourse Istanbul for the period 1995 to 2014. First, a strong result can be pronounced for a positive return effect for the second trading session compared to the first session. A similar positive effect is observed for the conditional volatility. Second, it can be concluded that only the systematic risk is priced for the great majority of the selected firms. Third, we cannot observe a significant asymmetry in the conditional volatility in most cases. Finally, it is founded that financial companies have a significantly higher systematic risk than industrial companies.",
keywords = "Asymmetric time varying volatility, Market microstructure, Risk-return relationship, Trading session effects, Turkey",
author = "Ercan Balaban and Tolga Ozgen",
note = "Acknowledgments: We are grateful to the editor, H. Eugene Stanley, and the reviewers for their constructive and helpful comments and suggestions. All remaining errors and omissions are of our own responsibility",
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T2 - Firm-level evidence from a European Union accession country

AU - Balaban, Ercan

AU - Ozgen, Tolga

N1 - Acknowledgments: We are grateful to the editor, H. Eugene Stanley, and the reviewers for their constructive and helpful comments and suggestions. All remaining errors and omissions are of our own responsibility

PY - 2016/3/15

Y1 - 2016/3/15

N2 - This paper primarily aims to test (i) the weak-form informational efficiency based on trading session effects on stock returns and their conditional volatility, (ii) the conditional total risk-return relationship and the systematic risk effects, and (iii) volatility persistence and asymmetry in volatility. We use firm level intraday data for two trading sessions with a two-hour lunch break from the Bourse Istanbul for the period 1995 to 2014. First, a strong result can be pronounced for a positive return effect for the second trading session compared to the first session. A similar positive effect is observed for the conditional volatility. Second, it can be concluded that only the systematic risk is priced for the great majority of the selected firms. Third, we cannot observe a significant asymmetry in the conditional volatility in most cases. Finally, it is founded that financial companies have a significantly higher systematic risk than industrial companies.

AB - This paper primarily aims to test (i) the weak-form informational efficiency based on trading session effects on stock returns and their conditional volatility, (ii) the conditional total risk-return relationship and the systematic risk effects, and (iii) volatility persistence and asymmetry in volatility. We use firm level intraday data for two trading sessions with a two-hour lunch break from the Bourse Istanbul for the period 1995 to 2014. First, a strong result can be pronounced for a positive return effect for the second trading session compared to the first session. A similar positive effect is observed for the conditional volatility. Second, it can be concluded that only the systematic risk is priced for the great majority of the selected firms. Third, we cannot observe a significant asymmetry in the conditional volatility in most cases. Finally, it is founded that financial companies have a significantly higher systematic risk than industrial companies.

KW - Asymmetric time varying volatility

KW - Market microstructure

KW - Risk-return relationship

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