How then can you explain the volatility of prices when the market's are closed? My point is that I don't think your solution would work. In fact it would raise the cost of doing business and therefore might increase realized volatility.
(I've been working in quantitative market research for 17 years so if you're going to answer, please feel free to be as specific as you like. I've read all the latest work by everyone taken seriously so you won't be too far ahead of me.)
" Are you under the mistaken assumptions that volatility is caused by the number of transactions? "
Darn good question! Actually, I'm not sure what causes volatility. However, I strongly suspect it is from large numbers of people all thinking they are smarter about markets than most other people when actually they are about average. This results in the huge market volumes we see today when coupled with computers.
What is your idea concerning the cause of volatility? I like to consider everything when it comes to markets.
I am not addressing the volatility, but when's the market really closed? You have after hours trading (ie, Instinet, etc), foreign markets are open, etc.