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Daily distribution of Swedish OMX-index returns over intraday-to-intraday time intervals

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  • Lars Norden

    (University of Lund, Sweden)

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    Abstract

    This paper examines the intradaily behaviour of the Swedish OMX stock index during the time period January 02 to December 30 1992. Daily 24-hour returns are calculated in 18 different time intervals during the day: open-to-open, intraday- to-intraday and close-to-close. Evidence of different OMX-return generating distributions is found. It is most striking when the distributions from the beginning and the end of the day are compared with the distributions terminating during the middle of the day. The evidence of differences in the variances and autocorrelations is supported by robust significance tests within a simplified setting of the Generalized Method of Moments (GMM) estimation. The variances show a V-shaped pattern when they are plotted against the terminal time of the returns as international studies also have shown, whereas the autocorrelations behave almost in an opposite fashion, which is inconsistent with previous research. Since the series of interval returns are exposed to the same flow of information the differences must be due to microstructure effects. The friction in the market prices seems to be more severe at the beginning and at the end of the trading day than at times in between. This implies that there is comparatively more noise in the pricing process just after the opening and prior to the closing of the exchange.

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    File URL: http://taloustieteellinenyhdistys.fi/images/stories/fep/f1994_1a.pdf
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    Bibliographic Info

    Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

    Volume (Year): 7 (1994)
    Issue (Month): 1 (Spring)
    Pages: 3-16

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    Handle: RePEc:fep:journl:v:7:y:1994:i:1:p:3-16

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    1. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
    2. Harris, Lawrence, 1986. "A transaction data study of weekly and intradaily patterns in stock returns," Journal of Financial Economics, Elsevier, vol. 16(1), pages 99-117, May.
    3. Hawawini, Gabriel & Cohen, Kalman & Maier, Steven & Schwartz, Robert & Whitcomb, David, 1980. "Implications of microstructure theory for empirical research in stock price behavior," MPRA Paper 33976, University Library of Munich, Germany.
    4. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
    5. Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July.
    6. Amihud, Yakov & Mendelson, Haim, 1991. " Volatility, Efficiency, and Trading: Evidence from the Japanese Stock Market," Journal of Finance, American Finance Association, vol. 46(5), pages 1765-89, December.
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