Implementation of Daylight Saving Time in the European Financial Market:Changes in Cross-regional Linkages and Intensified Market Volatility

Since March 30th, many European countries have implemented daylight saving time, advancing the trading hours of the financial market and the release time of economic data by one hour. This adjustment will profoundly affect the linkage rhythm between the eurozone and the Asian and American markets, and at the same time, enhance the volatility of the foreign exchange and futures markets.

From the perspective of market linkages, the change in trading hours has directly altered the overlapping periods between the eurozone and the Asian and American markets. In the connection with the Asian market, the partially overlapping period between the end of the Asian market and the beginning of the European market before the implementation of daylight saving time was a crucial period for investors to comprehensively capture information from both markets and judge market conditions. However, after the time advance, the misalignment of this overlapping window forces foreign exchange traders to recalibrate their focus periods to grasp the cross-market capital flow and price fluctuation signals. When it comes to the linkage with the American market, taking the US market as an example, the advancement of the European trading period may change the overlapping trading hours between the European and American markets, thus affecting the scale and rate of capital transfer between the two markets, and making the interaction mechanism of asset prices more complex. For instance, during the overlapping period, the buying and selling behaviors of European and American investors on the same asset influence each other, and after the time adjustment, the intensity and mode of this linkage effect will both change.

The dissemination rhythm of economic data and policy information has also been changed due to daylight saving time. The earlier release of European economic data allows Asian and American investors to obtain the information earlier. Once the data performance exceeds or falls short of expectations, the market reaction will be brought forward. For example, after the early release of the inflation data in the eurozone, Asian investors will adjust their investment portfolios based on the data before the local market opens. When the market opens, the prices of relevant assets will quickly reflect the impact of the data, changing the previous rhythm of gradually digesting the information only after the European market opens. Similarly, key information such as the policy decisions of the European Central Bank will spread more quickly to the global market. Investors will have more time to analyze the impact of the policies on the global economy and financial market, and then adjust their investment strategies in advance, strengthening the synchronization of policy transmission in the global market.

In the foreign exchange and futures markets, the impact of the daylight saving time adjustment on investors' behavior, market liquidity, and information shock levels will all exacerbate market volatility. The time adjustment will disrupt investors' biological clocks and trading habits. Research shows that in the initial stage of the implementation of daylight saving time, investors are prone to conditions such as lack of sleep and emotional fluctuations due to the adjustment of their work and rest schedules, which in turn leads to an increase in the decision-making error rate and makes the market price fluctuations more intense. In addition, the change in trading periods of investors in different regions will cause changes in the activity levels during the opening and closing periods of the market. The increased frequency of capital inflows and outflows will drive up price fluctuations. For example, in the foreign exchange market, the large influx of funds after the European market opens often triggers significant short-term fluctuations in the euro exchange rate.

In terms of market liquidity, the advancement of the European trading time may stimulate some investors to participate in trading more actively, increasing the scale of market capital flow. And the frequent transfer of funds between different markets will also amplify the range of price fluctuations. In the futures market, for example, if Asian investors close a large number of positions before the European market opens and then reopen positions after the European market opens, it will directly trigger significant fluctuations in the prices of relevant futures contracts. In terms of information shock, the earlier release of European economic data and policy information makes the market be driven by the data earlier. After the key data such as the GDP, inflation rate, and interest rate in the eurozone are released in advance, the foreign exchange market will react quickly, and the euro exchange rate will experience significant fluctuations. In the futures market, if the supply and demand data of European agricultural products are disclosed in advance and show a decrease in supply, the futures prices will rise rapidly after the European market opens and be transmitted to the global futures market, triggering a chain reaction of fluctuations.