Intra-Day Seasonalities on Stock Returns: Evidence from the Turkish Stock Market

Abstract

One of the interesting findings among the seasonalities in stock markets is that the return, volume and volatility of the stock prices and bid-ask spreads all broadly follow a U-shaped pattern over the trading day. This study examines the intra-daily seasonalities of the stock returns in the emerging Turkish Stock Market which is an order-driven continuous auction market using electronic trading without market makers in the period from January 1, 1996 through January 15, 1999 by using 15-minute (and also 5 minute and 1 minute) interval data. Results show that stock returns follow a U-shaped or more precisely a W-shaped pattern over the trading day at the Istanbul Stock Exchange (ISE) since there are two trading sessions in a day. This result is consistent with the previous findings in the literature. Opening (Overnight) and closing returns are significantly large and positive. In addition, volatility is higher at the openings and follows an L-shape pattern during the both sessions. Interestingly, the daily average close-to-close returns are generated only during the opening and closing intervals and the average intra-day return is negative when the returns at the opening and/or closing intervals (even the first and the last minutes of the day) are excluded from the analyses. Thus, the rest of the trading day provides no gains (losses) to close-to-close overall returns. Findings suggest that relatively higher closing prices are not corrected by the market at the opening of the next trading day. Relatively higher mean return and standard deviation at the openings of the trading sessions seem to be significantly generated by the accumulated overnight information and the closed-market effect (halt of trade). Mondays have the highest opening mean return and volatility among the days of the week supports this explanation. On the other hand, large day-end returns are strongly affected by the activities of fund managers and speculators who, at the end of the day, boost their portfolios' asset value by bidding higher and accepting ask prices that result to higher closing prices with the contribution of relatively higher minimum tick sizes determined by the Stock Exchange. Intra-day seasonalities that also exist significantly in the Turkish Stock Market, are consistent with those of the international stock markets. This conclusion implies that large profits can be realized by using a simple trading rule, based on the strong intra-day seasonalities in stock returns at the ISE, such as buying and selling stocks at a particular time of the day.