JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access ABSTRACT Patterns in stock market trading volume, trading costs, and return volatility are examined using New York Stock Exchange data from 1988. Intraday test results indicate that, for actively traded firms trading volume, adverse selection costs, and return volatility are higher in the first half-hour of the day. This evidence is inconsistent with the Admati and Pfleiderer (1988) model which predicts that trading costs are low when volume and return volatility are high. Interday test results show that, for actively traded firms, trading volume is low and adverse selection costs are high on Monday, which is consistent with the predictions of the Foster and Viswanathan (1990) model. ACADEMICS, INVESTORS, AND REGULATORS alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume. This interest was undoubtedly piqued by the market break of October 1987-a time during which volatility and trading volume reached unprecedented levels. But, even beforehand, researchers observed regular differences in the return process for various hours of the day and days of the week.Research concerning temporal patterns in stock market volatility and volume falls in two groups-studies that document observed patterns and studies that develop models to predict patterns. Among the studies in the first group are Oldfield and Rogalski (1980), French and Roll (1986), Stoll and Whaley (1990), Harris (1986), and Wood, McInish, and Ord (1985), who report evidence on seasonalities in daily and weekly return variances. Among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed. Oldfield and Rogalski (1980), French and Roll (1986), and Stoll and Whaley (1990), for example, point out significant differences in return volatility between trading The Journal of Finance and nontrading intervals. Overnight volatility is proportionately less than volatility during the trading day and weekend volatility is proportionately lower than trading day volatility. Using intraday data, Wood, McInish, and Ord (1985) document a U-shaped pattern in return volatility during the trading day, that is, volatility is highest at the beginning and the end of the trading day. Similarly, Harris (1986) shows strong intraday patterns in return volatility and presents his results by firm size. Along a different but related dimension, Jain and Joh (1988) show that the trading volume is different within and across days. They provide evidence of an inverted U-shape in volume across days. Monday an...

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