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Private Information, Trading Volume, and Stock Return Variances

Author

Listed:
  • Michael J. Barclay
  • Robert H. Litzenberger
  • Jerold B. Warner

Abstract

The institutional features of the Tokyo Stock Exchange allow tests that provide new insights into the determinants of stock return variances. When the exchange is open on Saturday, the weekend variance is roughly 60% higher than when it is closed. However, weekly variances are not increased by Saturday trading. The increase in weekend volume and variance caused by Saturday trading is offset by lower volume and variance on surrounding days. These results are consistent with the view that Saturday trading changes the timing of trades, and that variance is caused by private information revealed through trading. US stocks traded on Tokyo or Japanese stocks traded on the NYSE have increased trading hours, but trading of stock on a foreign exchange is typically light relative to domestic volume. The increased trading hours are not associated with an increase in stock return variance. This suggests that substantial volume is required for private information to be incorporated into stock prices and that there is no casual relation between trading hours and stock return variance.

Suggested Citation

  • Michael J. Barclay & Robert H. Litzenberger & Jerold B. Warner, "undated". "Private Information, Trading Volume, and Stock Return Variances," Rodney L. White Center for Financial Research Working Papers 38-88, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:38-88
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    Cited by:

    1. Ito, Takatoshi & Engle, Robert F. & Lin, Wen-Ling, 1992. "Where does the meteor shower come from? : The role of stochastic policy coordination," Journal of International Economics, Elsevier, vol. 32(3-4), pages 221-240, May.
    2. Noronha, Gregory M. & Sarin, Atulya & Saudagaran, Shahrokh M., 1996. "Testing for micro-structure effects of international dual listings using intraday data," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 965-983, July.
    3. Aarni Pursiainen, 1998. "Relationship between volatility and multilisting : evidence from the Finnish stock market," Finnish Economic Papers, Finnish Economic Association, vol. 11(2), pages 65-85, Autumn.

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