Evolution of Transitory Volatility over the Week

Charles Cao and Hyuk Choe ()
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Hyuk Choe: College of Business Administration, Seoul National University

Annals of Economics and Finance, 2000, vol. 1, issue 1, 49-77

Abstract: This study examines the evolution of transitory volatility over the week for NYSE/AMEX stocks. We treat the block of five trading days during a week as a single trading session and control for disproportionate rates of information arrival over the week by comparing variances of weekly returns measured on different days of the week. Our evidence, from both portfolios and individual stocks, is largely consistent with the implications of price formation models. We find that prices on Mondays contain significantly greater transitory volatility than prices on the other days of the week. Transitory volatility declines steadily over the week. Cross-sectionally, the speed and magnitude of dissipation of transitory volatility are greater for larger firms. Portfolio returns exhibit a much stronger pattern, suggesting that much of transitory volatility varying in the process of price formation is not diversifiable. Similar evidence is obtained from our analyses of the Dow Jones Index, the S\&P 500 index futures and the Japanese Nikkei 225 Index.

Keywords: Transitory volatility; Price formation; Exogenous liquidity demand (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2000:v:1:i:1:p:49-77

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