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The impact of settlement time on the volatility of stock markets

Author

Listed:
  • Dong Li
  • Shao-King Lin
  • Chulin Li

Abstract

In this paper we investigate the impact of the switching from the same-day settlement to the following-day settlement on the market volatility and its structure. Using the Levene tests and bootstrap procedures, we find that the switching causes a drastic decrease in the stock market volatility. In addition, using a modified GARCH model, we also find a substantial change in the volatility structure, which implies that the markets become less efficient after the switching since the volatility shocks are less quickly assimilated in the stock markets.

Suggested Citation

  • Dong Li & Shao-King Lin & Chulin Li, 1997. "The impact of settlement time on the volatility of stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 689-694.
    • Handle: RePEc:taf:apfiec:v:7:y:1997:i:6:p:689-694
    DOI: 10.1080/758533861
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    References listed on IDEAS

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    1. Sang Bin Lee & Ki Yool Ohk, 1992. "Stock index futures listing and structural change in time‐varying volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 12(5), pages 493-509, October.
    2. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-229, March.
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    Cited by:

    1. Yongyang Su & Lan Zheng, 2011. "The Impact of Securities Transaction Taxes on the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 32-46, January.
    2. Isabel Parra-Frutos, 2009. "The behaviour of the modified Levene’s test when data are not normally distributed," Computational Statistics, Springer, vol. 24(4), pages 671-693, December.

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