Shall One Sit “Longer” for a Free Lunch? Impact of Trading Durations on the Realized Variances and Volatility Spillovers

• Published in: Journal of quantitative economics : journal of the Indian Econometric Society Vol. 18; no. 1; pp. 1 - 28
• Main Authors: Raizada, Gaurav, Srivastava, Vartika, Rao, S. V. D. Nageswara
• Format: Journal Article
• Language: English
• Published: New Delhi Springer India 01-03-2020
• Subjects: Econometrics; Economics; Economics and Finance; Finance; Game Theory; Insurance; Management; Original Article; Social and Behav. Sciences; Statistics for Business; Trading durations; G12; G15; Currency futures; Realized variance; Cross listing
• ISSN: 0971-1554; 2364-1045
• DOI: 10.1007/s40953-019-00169-9

This study examines the effect of trading durations on the realized variance of rupee futures traded in national stock exchange (NSE), India and Dubai Gold & Commodities Exchange (DGCX), Dubai as there exists a difference in the trading durations at these exchanges, where DGCX has longer trading duration. The empirical results suggest that longer trading duration has significantly higher realized variance, and also non-trading durations at NSE account for higher overall realized variance of Rupee Futures. We model the impact of trading durations on intraday and overnight realized variance for rupee futures and estimate a reduced realized volatility of 40–70 bps due to shorter trading duration. We find that non-trading durations at National Stock Exchange account for 60–70% of the overall realized variance of rupee futures. Using MGARCH model with BEKK parameterization, we find evidence of bidirectional volatility spillover from Offshore to Onshore Rupee markets.