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Shall One Sit “Longer” for a Free Lunch? Impact of Trading Durations on the Realized Variances and Volatility Spillovers

Author

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  • Gaurav Raizada

    (Indian Institute of Technology Bombay)

  • Vartika Srivastava

    (Indian Institute of Technology Bombay)

  • S. V. D. Nageswara Rao

    (Indian Institute of Technology Bombay)

Abstract

This study examines the effect of trading durations on the realized variance of rupee futures traded in national stock exchange (NSE), India and Dubai Gold & Commodities Exchange (DGCX), Dubai as there exists a difference in the trading durations at these exchanges, where DGCX has longer trading duration. The empirical results suggest that longer trading duration has significantly higher realized variance, and also non-trading durations at NSE account for higher overall realized variance of Rupee Futures. We model the impact of trading durations on intraday and overnight realized variance for rupee futures and estimate a reduced realized volatility of 40–70 bps due to shorter trading duration. We find that non-trading durations at National Stock Exchange account for 60–70% of the overall realized variance of rupee futures. Using MGARCH model with BEKK parameterization, we find evidence of bidirectional volatility spillover from Offshore to Onshore Rupee markets.

Suggested Citation

  • Gaurav Raizada & Vartika Srivastava & S. V. D. Nageswara Rao, 2020. "Shall One Sit “Longer” for a Free Lunch? Impact of Trading Durations on the Realized Variances and Volatility Spillovers," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 1-28, March.
    • Handle: RePEc:spr:jqecon:v:18:y:2020:i:1:d:10.1007_s40953-019-00169-9
    DOI: 10.1007/s40953-019-00169-9
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    More about this item

    Keywords

    Realized variance; Currency futures; Cross listing; Trading durations;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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