The financial markets’ structure establishes what is known as the “rules of the game” (Biais & Co., 2005) that are the basis upon which both educated investors and (implicit) market participants make their choices. Thus, the effect of any changes to the structure of markets on volatility, liquidity, and price structure is of paramount significance for market participants, the owners of exchanges, as well as regulators. Changes like this are rare and occur at a single point or a few times throughout a couple of years. Therefore, market participants have to base their assessment of future changes on studies that examine the way these changes or similar ones have affected markets in the past. They can also provide a basis for future changes in market structure. Therefore empirical research has examined the consequences of changes in the structure of markets including the introduction of auctions for call (Agarwalla and co. 2015. Inci as well as Ozenbas 2017) as well as changes in the design of auctions (Park and others. 2022), tick-size reduction (Hsieh et al. 2011) or trading hours extension.

A few studies have looked at the effects of trading hour extensions on intraday return or volatility in the stock as well as futures markets (Barclay and Hendershott 2003; Fan and Lai 2006; Houston and Ryngaert 1992; Kadioglu 2021; Lee and co. 2009; Miwa 2019; Miwa and Ueda 2017). These studies showed that the extension of trading hours has negative effects on the efficiency of prices. Even though trading on the forex (forex) market has been identified as the world’s biggest financial market by turnover and has a significant impact for our economy footnote 1 as of the most of our knowledge, none of the studies have looked into the impact of trading hour extensions in the forex) market.

The forex market significantly differs from equity markets. It’s a two-tier market which is separated from the interbank market where professional currency traders trade with each other, and the price discovery process takes place in the market for customers, in which customers deal with banks and place their orders that are later executed through the market for interbank transactions. There are no specialized market makers, and trading activities are carried out all over the world every day because many trading platforms are accessible at all hours of the day. There are however regional trading platforms, which use the same technology as international ones, and they offer dedicated trading hours, for instance Moscow Exchange. Moscow Exchange (MOEX, formerly MICEX, Moscow Interbank Currency Exchange). Extensions to trading hours for these markets are uncommon. Although these local exchanges at first glance appear to be insignificant however they may be extremely important for the currency they trade in. In the year 2018, the MOEX made up 68% of all global Ruble-Dollar, and 78% of Ruble Euro trade footnote 2 which is also the principal liquidity center of Russische Ruble (RUB). The price discovery for the currency is mostly done via the MOEX.

In addition, unlike equity markets, Ultra-high frequency data on the Forex market can be difficult to find, and the available data sets are typically small and span just a few weeks to a few days or even months.

In conclusion, although studying the impact of trading hours extensions on markets for forex can provide valuable feedback to traders, market regulators, operators and traders, and despite its enormous importance, the empirical evidence is lacking. Therefore, our goal is to bridge this gap and present the first research on the effects of extended trading hours on the market for forex.

In order to do this, it is necessary to use a unique collection of data from MOEX that is extensive and thorough, an extraordinary combination. In contrast to the data available from other market, we utilize the ten-year period of data that includes six extensions to trading hours footnote3 and, consequently, gives us a high level of statistical power. To our best information, there isn’t other market, and certainly no more recent timeframe that is comparable to MOEX. MOEX and no other exchange that has similar numbers of adjustments to trading hours. In addition to its size and depth, one of the advantages of our database is that we are able to observe two distinct instruments: tick-by-tick data from the same day (as an indirect representation of the market on the spot) and the next-day settlement (as an indirect representation of trading in the futures market) for RUB RUB in comparison to the US dollar (USD) exchange-rate contract traded through the Moscow Exchange Foreign Exchange Market segment in the sample period. The RUB/USD rate for bilateral trading is chosen over the EUR/RUB due to the fact that the volume of transactions exceeds the rate of the former by almost 8. Due to its importance in the settlement of other commodities and energy exports, the RUB/USD rate has always been more significant in terms of both economic and volume.

We don’t intend to provide an explanation of the dynamics of exchange rates over the time. We instead aim to understand the effects of trading hour extension on the forex market (for these platforms, which aren’t open all hours of the day) from an overall perspective. We are therefore focused on general trading hours as well as the properties of exchange rates and the nexus between them, instead of the explanation of market dynamics for specific periods. The results show that prolonging trading hours has resulted in a statistically significant increase in the volatility that has been observed historically for the same-day and next-day settlements of RUB/USD exchange rate at both the 5-min and 15-min intraday intervals following the extension of trading hours. We observe the greatest increase in volatility after the market is open and the lowest level when it closes. The results for the actual volatility, which are derived from the autoregressive moving mean-autoregressive conditional heteroscedasticity (ARMA-GARCH) model, show that the RUB/USD exchange rate grew significantly after the extension of trading time on MOEX.

Furthermore, the length of the extension in trading hours is a significant factor in the degree of actual volatility. This study reveals an important, positive correlation between realized volatility and time of the trading hours extension. The findings are applicable to both 15 and 5-min intraday levels, as well as different indicators of volatility. In addition, the extension of trading hours led to an increase in volume as well as an increase in spread throughout the days and during middays. This led to an increase in both the spread and volume at opening time.

The remainder of the document is arranged as follows. ” Literature review” section gives an overview of the relevant literature, while the ” Data and methodology” section provides the data and explains the methodological process. The ” Results” section discusses and presents the findings. The final remarks are provided in the ” Conclusion” section.