Trading session effects on stock returns and their conditional volatility: Firm-level evidence from a European Union accession country

• Pioneering effort to analyze trading session effects on stock returns and volatility.
• Firm-level data used from Turkey, where stock market trading is non-continuous.
• There are two trading sessions with a two-hour lunch break in between.
• Both return and volatility increase in the second trading session for most firms.
• No asymmetry in volatility in most cases, and only systematic risk is priced.

This paper primarily aims to test (i) the weak-form informational efficiency based on trading session effects on stock returns and their conditional volatility, (ii) the conditional total risk–return relationship and the systematic risk effects, and (iii) volatility persistence and asymmetry in volatility. We use firm level intraday data for two trading sessions with a two-hour lunch break from the Bourse Istanbul for the period 1995 to 2014. First, a strong result can be pronounced for a positive return effect for the second trading session compared to the first session. A similar positive effect is observed for the conditional volatility. Second, it can be concluded that only the systematic risk is priced for the great majority of the selected firms. Third, we cannot observe a significant asymmetry in the conditional volatility in most cases. Finally, it is founded that financial companies have a significantly higher systematic risk than industrial companies.