A transactions data analysis of the variability of common stock returns during 1980–1984

Using transactions data for a large sample of NYSE stocks for six months in 1971–1972 and calendar year 1982, Wood, McInish and Ord (1985) (WMO) show that the graph of the variability of index returns across days against time of day has a crude U-shaped pattern. This study demonstrates that relatively high variability of returns at the beginning and end of the trading day also occurs during calendar years 1980, 1981, 1983 and 1984. In addition, the variability of intra-minute returns across stocks is shown to have a crude U-shaped pattern when plotted against time of day. A model is developed and tested that explains this pattern of variability of intra-minute returns in terms of variability of market returns over the trading day. The empirical results are consistent with this explanation.