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
Cyree, K. B.,
Winters, D. B.
(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: https://aquila.usm.edu/fac_pubs/3768