The Dynamics of Intraday Trade-time Outcomes
49 Pages Posted: 29 Sep 2016 Last revised: 9 Apr 2018
Date Written: March 31, 2018
We document the intradaily patterns of return volatility and trading activity in trade times of fixed dollar volumes --- shorter trade times reflect higher trading activity. Unlike the U-shaped intraday seasonality in calendar-time volatility, trade-time volatility plunges by 40-60% over the day: higher calendar-time volatilities near close solely reflect greater trading volumes. Controlling for time-of-day, trade-time volatilities fall sharply as trade times shorten, indicative of endogenous responses of investors to variations in liquidity. Indeed, trade-time volatilities closely proxy ITG's institutional trading cost estimates. We uncover evidence of imperfectly-competitive liquidity provision: price reversals in less active markets but momentum in active ones.
Keywords: Trading Activity, Volatilty, Trade time, Time-of-Day Pattern, Liquidity
JEL Classification: G10, G14, G20
Suggested Citation: Suggested Citation