An intraday examination of the federal funds market: Implications for the theories of the reverse-J pattern
Finance, Real Estate, and Business Law
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.
JOURNAL OF BUSINESS
(2001). An intraday examination of the federal funds market: Implications for the theories of the reverse-J pattern. JOURNAL OF BUSINESS, 74(4), 535-556.
Available at: http://aquila.usm.edu/fac_pubs/3768