Volume, volatility and periodic closure with information uncertainty

Type de publication : Cahier de Recherche ESG

Date de la publication : Décembre 2004

Auteur(s) : M. DERHY Armand

Co-Auteur(s)

• BELLALAH Mondher

Détails (Pages/Numéro) : Cahier de Recherche de l'ESG N°11

Abstract : This paper investigates the effects of opening and closing on transactions demand, volume, and volatility of options prices and their underlying assets. We use an extension of the models in Merton (1971) as in Brock and Kleidon (1992), who consider a similar issue with respect to equity markets. The transactions demand at open and close in the underlying assets markets are studied in the presence of information costs using the main concepts in Merton's (1987) model of capital market equilibrium with incomplete information. As in other studies by Brock and Kleidon (1992), Smith and Webb (1994), Hong and Wang (2000), Bellalah and Zhen (2002), we show that periodic market closure leads to periodic changes in the demand for transaction services. We present some empirical work regarding the patterns in volume, volatility and spreads using a dataset for the Paris Bourse. The predictions of periodic demand with high volume at open and close in options markets and their underlying assets are consistent with other markets. They confirm also the more recent results in Hong and Wang (2000) and Bellalah and Zhen (2002).

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