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 a n intraday reverse-J pattern. Two competing theories explain the observed p atterns: private information about future security prices and trading stopp ages. The Federal funds market allows a unique opportunity to study the cau ses of intraday patterns because private information common to most markets does not play a role in setting prices. We find reverse-J variance pattern s while accounting for generalized autoregressive conditional heteroskedast icity (GARCH) model effects. Our results support trading stops as an explan ation for the reverse-J pattern and suggest that private information is not a necessary condition for the observed pattern.