Information and Volatility: Evidence from an Emerging Market

This study examines the volatility of daily stock returns and the volatility of returns during trading and non-trading hours for securities trading on the Istanbul Stock Exchange. Some unique characteristics of this exchange enable us to examine the reasons for the high volatility during trading hours. First, the price-determination procedure at the opening is the same as the pricing mechanism used during the rest of the day. Second, there is no specialist or market maker who sets prices. Third, there is a two-hour day break in trading during a business day. The volatility of daily return calculated from opening prices is found to be significantly higher than those calculated from closing prices in this market setting as well. Volatility of returns during trading periods is found to be higher than those during non-trading periods. Furthermore, per-hour volatility during the day break is higher than per-hour volatility during the night break. Findings of this study have some implications for the role of market maker and the impact of timing and length of a break in trading on the volatility of security returns.