Interday and intraday volatility : evidence from the Shanghai Stock Exchange

After examining both the interday and intraday return volatility of the Shanghai Composite Stock Index, it was found that the open-to-open return variance is consistently greater than the close-to-close variance. The volatility of interday returns and variance ratio tests with five-minute intervals reveal that an L-shaped pattern, or more precisely, two L-shaped patterns starting with a small hump during both the morning and the afternoon session, with the morning session having a much higher interday volatility than the afternoon session. This broadly L-shaped interday volatility is also supported by an L-shaped intraday volatility pattern. The autocorrelation of the open-to-open return series also indicates that the temporary price deviation at the continuous open rather than the auction open is significant. This result suggests that high volatility of intraday returns for the market open is not due to the trading mechanisms (call auction in the market opening) but rather it is due to both the accumulated overnight information and the trading halt effect. The five-minute breaks after the auction and blind auction procedures are the two major driving forces which exaggerate the high intraday volatility observed at the market open.