[Prior analyses of prices of the NYSE and other exchanges find that transitory price volatility is greater at the open of trading than at the close. We extend this line of research by using 40 years of hourly Dow Jones 65 Composite price index data to estimate transitory volatility throughout the trading day. Our results indicate that transitory volatility steadily declines during the trading day. We find a similar intraday decline in transitory volatility for a 21/2-year sample of the individual firms in the Dow Jones 30 Industrials Index. The results are consistent with the hypothesis that trading aids price formation and do not support the argument that particular trading mechanisms are the source of greater volatility at the open of trading.]

Prior analyses of prices of the NYSE and other exchanges find that transitory price volatility is greater at the open of trading than at the close. We extend this line of research by using 40 years of hourly Dow Jones 65 composite price index data to estimate transitory volatility throughout the trading day. Our results indicate that transitory volatility steadily declines during the trading day. We find a similar intraday decline in transitory volatility for a 2½-year sample of the individual firms in the Dow Jones 30 Industrials Index. The results are consistent with the hypothesis that trading aids price formation and do not support the argument that particular trading mechanisms are the source of greater volatility at the open of trading.

This paper analyzes how the daily opening and closing of financial markets affect trading volume. The authors model the desire to trade at the beginning and end of the day a a function of overnight return volatility. NYSE data from 1933-88 indicate that closing volume is positively related.to expected overnight volatility, while volume at the open is positively related to both expected and unexpected volatility from the previous night. The authors interpret the symmetric response of trading at the open and the close to expected volatility as being due to investor heterogeneities in the ability to bear risk when the market is closed. This desire of investors to trade prior to market closings indicates a cost of mandating marketwide circuit breakers.

This paper analyzes how the daily opening and closing of financial markets affect trading volume. We model the desire to trade at the beginning and end of the day as a function of overnight return volatility. NYSE data from 1933–88 indicate that closing volume is positively related to expected overnight volatility, while volume at the open is positively related to both expected and unexpected volatility from the previous night. We interpret the symmetric response of trading at the open and the close to expected volatility as being due to investor heterogeneities in the ability to bear risk when the market is closed. This desire of investors to trade prior to market closings indicates a cost of mandating marketwide circuit breakers.