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An Intraday Examination of the Federal Funds Market: Implications for the Theories of the Reverse-J Pattern

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  • Cyree, Ken B
  • Winters, Drew B

Abstract

The intraday literature suggests that returns, variances, and volume form an intraday reverse-J pattern. Two competing theories explain the observed patterns: private information about future security prices and trading stoppages. The Federal funds market allows a unique opportunity to study the causes of intraday patterns because private information common to most markets does not play a role in setting prices. We find reverse-J variance patterns while accounting for generalized autoregressive conditional heteroskedasticity (GARCH) model effects. Our results support trading stops as an explanation for the reverse-J pattern and suggest that private information is not a necessary condition for the observed pattern. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Cyree, Ken B & Winters, Drew B, 2001. "An Intraday Examination of the Federal Funds Market: Implications for the Theories of the Reverse-J Pattern," The Journal of Business, University of Chicago Press, vol. 74(4), pages 535-556, October.
  • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:4:p:535-56
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    Cited by:

    1. A. Christian Silva & Ju-Yi Yen, 2010. "Stochastic resonance and the trade arrival rate of stocks," Quantitative Finance, Taylor & Francis Journals, vol. 10(5), pages 461-466.
    2. Hughes, Michael P. & Smith, Stanley D. & Winters, Drew B., 2007. "An empirical examination of intraday volatility in on-the-run U.S. Treasury bills," Journal of Economics and Business, Elsevier, vol. 59(6), pages 487-499.
    3. A. Christian Silva & Ju-Yi J. Yen, 2008. "Stochastic resonance and the trade arrival rate of stocks," Papers 0807.0925, arXiv.org.
    4. Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2004. "An empirical examination of the intraday volatility in euro-dollar rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 44-57, February.
    5. Nguyen, Vanthuan & Phengpis, Chanwit, 2009. "An analysis of the opening mechanisms of Exchange Traded Fund markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 562-577, May.
    6. R. Baupain & A. Durre, 2007. "The interday and intraday patterns of the overnight market : evidence from an electronic platform," Post-Print hal-00300195, HAL.
    7. Hughes, Michael P. & Smith, Stanley D. & Winters, Drew B., 2008. "The effect of auctions on daily treasury-bill volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(1), pages 48-60, February.
    8. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.
    9. Erzurumlu, Yaman Omer & Kotomin, Vladimir, 2010. "Inventory management effects, isolated: Evidence from the federal funds market," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 61-66, February.
    10. Çankaya, Serkan & Ulusoy, Veysel & Eken, Hasan/M., 2011. "The Behavior of Istanbul Stock Exchange Market: An Intraday Volatility/Return Analysis Approach," MPRA Paper 43656, University Library of Munich, Germany.
    11. Kentaro Iwatsubo & Clinton Watkins & Tao Xu, 2017. "Intraday Seasonality in Efficiency, Liquidity, Volatility and Volume: Platinum and Gold Futures in Tokyo and New York," Discussion Papers 1715, Graduate School of Economics, Kobe University.
    12. Ozgur (Ozzy) Akay & Mark D. Griffiths & Drew B. Winters, 2010. "On The Robustness Of Range-Based Volatility Estimators," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(2), pages 179-199.
    13. Kotomin, Vladimir & Winters, Drew B., 2007. "The impact of the return to lagged reserve requirements on the federal funds market," Journal of Economics and Business, Elsevier, vol. 59(2), pages 111-129.
    14. IWATSUBO Kentaro & Clinton WATKINS & XU Tao, 2017. "Intraday Seasonality in Efficiency, Liquidity, Volatility, and Volume: Platinum and gold futures in Tokyo and New York," Discussion papers 17120, Research Institute of Economy, Trade and Industry (RIETI).
    15. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.

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