Volatility, information, and double versus walrasian auction pricing in US and Japanese futures markets

Daytime vs. Overnight Trading in Equity Index Futures Markets

“…Hence, the "24-hr-8:30AM-to-8:30AM" return variances are not significantly different as compared to their "24-hr-3:15PM-to-3:15PM" counterparts. Our results provide further empirical support for the results and arguments in Amihud and Mendelson (1991), Dhillon et al (1997) andTse (1999). We conclude that despite the low trading volume, the overnight trading session aids in an efficient flow of information from one daytime trading session to the next, thereby mitigating the pricing errors in the process.…”

“…The central argument here is that the overnight session has the potential to process and efficiently transfer the information relayed from the daytime session, and give the E-mini traders a benchmark price to go by at the beginning of the daytime session, which begins the next day. Hence, in accordance with the arguments in Amihud and Mendelson (1991), Dhillon et al (1997) and Tse (1999), the variance of "24-hr-8:30AM-to-8:30AM" returns (i.e., the pricing errors for the daytime session which is not preceded by a long non-trading overnight period) should not be significantly different from that for the "24-hr-3:15PM-to-3:15PM" returns. However, the results from Grossman et al (1980) cast a doubt if this will hold true for the E-mini markets with such low trading volume for the overnight sessions.…”

“…They examine open-to-open and close-to-close returns for these two markets and find that COMEX open-to-open return variance is 12% greater than its close-to-close counterpart, and the same is just 5% for TOCOM. Supporting the arguments of Amihud and Mendelson (1991), Dhillon et al (1997) conclude that it is due to the efficient flow of information from the open market (COMEX) to the closed market (TOCOM), that the TOCOM open-to-open return variance is only 5% greater as compared to its close-to-close counterpart. Similarly, the higher (12%) open-to-open return variance for COMEX may be explained by the fact that the information revealed during the TOCOM trading period is not efficiently transferred to the closed market COMEX.…”

“…In tune with the findings in Amihud and Mendelson (1991), Dhillon et al (1997) examine identical gold futures contracts traded at the Commodity Exchange of New York (COMEX) and at the Tokyo Commodity Exchange (TOCOM). They examine open-to-open and close-to-close returns for these two markets and find that COMEX open-to-open return variance is 12% greater than its close-to-close counterpart, and the same is just 5% for TOCOM.…”

International linkages in Euromark futures markets: Information transmission and market integration

“…In any case, few papers have investigated information transmission between nearly identical futures contracts traded on different international markets. Some examples are Bacha and Fremault Vila (1994) (Nikkei stock index futures traded on the Singapore, Osaka, and Chicago exchanges), Dhillon, Lasser, and Watanabe (1997) (gold futures traded on Tokyo and New York), Shyy and Lee (1995) (Bund futures traded on London and Frankfurt), and Tse, Lee, and Booth (1996) (Singapore, London, and Chicago Eurodollar futures).…”