Intraday analysis of regulation change in microstructure: evidence from an emerging market

PurposeThis study investigates the impact of simultaneously replacing both midday single-price call auction and lunch break with multi-price continuous trading on intraday volatility–volume patterns as well as the intraday volatility–volume nexus.Design/methodology/approachThe analysis utilises 150 m tick-by-tick transaction data related to 333 stocks traded on Borsa Istanbul Equity Market covering a period of 2 months prior to and following the change. In addition to graphic comparisons, the study uses difference in mean tests, panel-fixed generalized least squares (GLS), panel-random GLS and random-effects linear models with AR(1) disturbance regression estimations.FindingsThe results show that intraday volatility and trading volume form an inverse J-shape and are positively correlated. It is observed that the implementation of the regulation change decreased intraday volatility and increased trading volume. Additionally, the results indicate a negative volatility–liquidity and a positive volume–liquidity relationship, supporting the mixture of distribution hypothesis.Research limitations/implicationsEnhanced market efficiency provides greater opportunity for investment and risk management. Investors can benefit from the findings on the intraday volatility–volume nexus, which is an indicator of informed trading, and regulatory authorities can use volume to oversight volatility.Originality/valueThis very rare regulation change of the simultaneous replacement of the lunch break and midday call auction with continuous trading is investigated in the context of intraday volume and volatility. This study also expands upon some important findings on the volume–volatility nexus for the Turkish Stock Market.

Intraday Volatility Spillovers among European Financial Markets during COVID-19

During crises, stock market volatility generally rises sharply, and as consequence, spillovers are identified across markets. This study estimates the volatility spillover among twelve European stock markets representing all four regions of Europe. The data consists of 10,990 intraday observations from 2 December 2019 to 29 May 2020. Using the methodology of Diebold and Yilmaz, we use static and rolling windows to characterize five-minute volatility spillovers. Our results show that 77.80% of intraday volatility forecast error variance in twelve European markets comes from spillovers. Furthermore, the highest gross directional volatility spillovers are found in Sweden and the Netherlands, while the minimum spillovers to other stock markets are observed in the stock markets of Poland and Ireland. However, German and Dutch markets transmit the highest net directional volatility spillovers. Splitting the whole sample in pre- and post-pandemic declaration (11 March 2020) we find more stable spillovers in the latter. The findings reveal important information about European stock market interdependence during COVID-19, which will be beneficial to both policy-makers and practitioners.

The relationship between European Brent crude oil price development and US macroeconomy

Abnormal volatility has a damaging effect on the macroeconomy and is seen as a measure of risk in asset and commodity markets. This investigation had the aim to analyze the supposed transatlantic volatility inducing effect of the most prominent scheduled macroeconomic news announcements from the United States (US) on Brent Blend crude oil price intraday volatility over a period of seven years from 2012 to 2018. The objective was to generate a ranking list of scheduled US macroeconomic news that forecast high intraday volatility episodes at precise points in time. A total of 38 US news was analyzed using a data mining workflow. Data modeling was conducted using a simple ordinary least squares regression model and performed with programming language Python. A one hour window of rolling standard deviation based on one minute high-frequency closing prices were applied. As a result, 20 scheduled US macroeconomic news was successfully identified to significantly impact Brent crude oil price volatility. The model strongly supports the forecast of high price fluctuations and provides an opportunity for market players to adjust their risk management strategies right in time.