Abstract
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.
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