Tracking Daily Stock Price Volatility

Stock price volatility is one of the most important aspects of studying the market. This article focuses on looking back through years of market data to determine if there are any general trends in daily price volatility. It's a commonly held belief that the open and close of trading are the most volatile times of the day. We will determine if that is true and if so how much of an impact it has.

Price

Looking for extremes

This article is about Price

The first part of the analysis was to see if the hour of the day had an impact on the likelihood of a stock to hit an extreme. In this case we decided to look for price minimums. We measured the occurrences of a symbol having it's daily price minimum within the specified hours of the day on several randomly selected days. The count of occurrences is not necessarily important, but the scale of them is.

Results:
9-10am: 6900 minimums 10-11am: 6700 minimums 11am-12pm: 4900 minimums 12-1pm: 3600 minimums 1-2pm: 3650 minimums 2-3pm: 4900 minimums 3-4pm: 6200 minimums

If we try to picture the above data as a line graph it would look like bowl: high at the extremes and low in the middle.

The results are intuitive but the degree of difference is somewhat surprising. It was not surprising that the open and close are the most volatile, but the observation that the first hour of trading had twice as many price minimums as the middle of the day was. But, does this data really reveal a trend? The next logical question is whether there is a difference in behaviour here for stocks that are increasing or decreasing for the day.

Division by price direction

Now let's separate the data by the price direction.

Increasing for the day:
9-10am: 3400 minimums 10-11am: 3700 minimums 11am-12pm: 2800 minimums 12-1pm: 2200 minimums 1-2pm: 2100 minimums 2-3pm: 2100 minimums 3-4pm: 2300 minimums

Decreasing for the day:
9-10am: 2300 minimums 10-11am: 3100 minimums 11am-12pm: 1900 minimums 12-1pm: 1500 minimums 1-2pm: 1700 minimums 2-3pm: 4250 minimums 3-4pm: 3450 minimums

The above data actually has some interesting implications. For a stock that is heading down on a given day the normal expectation would be for its price minimum to occur later in the day, but here we have that dip in the middle of the day again. The behaviour of the stocks heading up is not surprising although intuitively the line should be heading further down at the end of the day.

What are the implications?

Overall there is definitely a correlation between hour of the day and prices changes/volatility, but one that makes sense. If you are trying to dump a stock you may have a slightly better chance of not hitting the daily minimum by trading in the middle of the day, over the long run.

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