Price volatility, welfare, and trading hours in asset markets

This paper studies the consequences of opening asset markets more often for the properties of asset prices and social welfare. For all reasonable parameter values, increasing trading hours lowers average asset prices, increases unconditional asset price volatility at a given point in time, and decreases unconditional asset price volatility when averaged over the period of time that includes the additional hours that markets are open. Unconditional social welfare is increased by opening markets more often, although the welfare gains are small ± well below 1% of lifetime consumption. In contrast, because expanding hours of trading a€ects agents' information sets, the welfare e€ect of more trading hours conditional on information available to agents can be large and the e€ect can be negative. Ó 2001 Elsevier Science B.V. All rights reserved. JEL classi®cation: G10; G28; D60