Tuesday, April 04, 2006

First Half Hour as a Volatility Indicator

Interesting finding: I went back to 11/29/05 and hourly data in SPY. When the first half-hour in SPY is nearly unchanged (neither rising nor falling more than .05%; N = 33), the median range for the rest of the day is .61%, with only 13 of the 33 occasions hitting a range of .70%. When the first half-hour in SPY rises or falls more than .05% (N = 54), the median range for the remainder of the day has been approximately .75%, with 31 of the 54 occasions reaching .70% or greater. A slow half-hour appears to be a warning sign of low volatility for the remainder of the day. More on this topic shortly.


D TradeIdeas said...

Good stuff as usual. I'm curious: could great weather like the East coast is experiencing of late impact volatility? Who wants to trade when its perfect weather outside?

Brett Steenbarger, Ph.D. said...

Actually, I seem to recall a study that showed more bearish market behavior during rainy periods in NYC. And if there's a major athletic event during trading hours, you know the locals will be out of the markets in Chicago... :-)