Increased Trading Hours and its Post-Impact on Market Efficiency: Empirical Evidence from the Indian Stock Market

Abstract

Efficiency of the equity market is one of the areas of prime concern for the stock market regulators because of its bearing on the investment behavior of investors. Also, with the increase in the level of integration with global stock markets, information originating in different countries has an impact on the Indian markets. This calls for the operating standards of the domestic market to be at par with other developed global stock markets. Extending the trading hours is one of the latest actions initiated by SEBI in order to increase the efficiency and volume of the market, reducing the volatility in returns and thereby providing enough time to investors for implementing investment strategies. It would also align the domestic market with the Asian and European markets. This study is an effort to analyze the impact of change in market timings on the volatility and volume of trade in the Indian stock market, its dependence on Singapore Stock Exchange (SGX) Nifty Futures and investment behavior of the Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). The returns and turnover in S&P CNX Nifty, returns on SGX Nifty Futures, and net investments by FIIs and DIIs have been analyzed on a daily basis using the software E-Views and SPSS by applying GARCH model, Independent sample t-test and linear regression model. It is found that subsequent to the change in stock market timings, the volatility has reduced while the volume of trade has increased. It is also found that the net investments by FIIs increased while that by DIIs decreased, and the impact of Nifty Futures traded in the Singapore Stock Exchange (SGX) on the Nifty Index reduced as a result of change in market timings.