An Intraday Examination of the Federal Funds Market: Implications for the Theories of the Reverse‐J Pattern

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 cau...

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Bibliographic Details
Published in:The Journal of business (Chicago, Ill.) Ill.), 2001-10, Vol.74 (4), p.535-556
Main Authors: Cyree, Ken B., Winters, Drew B.
Format: Article
Language:English
Subjects:
Bank accounts
Bank loans
Bank reserves
Business
Business studies
Capital
Capital market
Cash flow
Desks
Federal funding
Federal funds
Federal funds rate
Federal Reserve Bank
Hypotheses
Information
Interest rates
Lines of credit
Loan agreements
Modeling
Open markets
Price elasticity
Regulation D
Required reserves
Securities markets
Securities trading
Settlements & damages
Statistical data
Statistical variance
Stock exchange
Stock prices
Studies
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Summary: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.
ISSN:0021-9398
1537-5374
DOI:10.1086/321937