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Volatility in US and European Equity Markets: An Assessment of Market Quality

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  • Ozenbas, Deniz
  • Schwartz, Robert A
  • Wood, Robert A
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    Abstract

    The paper examines intra-day share price volatility over the year 2000 for five market centres: the New York Stock Exchange, Nasdaq, the London Stock Exchange, Euronext Paris and Deutsche Borse. In each of these markets, we observe a U-shaped intraday volatility pattern, a particularly sharp spike for the opening half hour, and a general level of intra-day volatility that is accentuated vis-a-vis volatility over longer differencing intervals, e.g. daily and weekly periods. We suggest that the volatility accentuation is attributable to spreads, market impact, price discovery and momentum trading--all of which are either trading costs or exist because of trading costs. Because the magnitude of trading costs depends in part on market design, we also suggest that a link exists between intra-day volatility and market structure, and that market quality/efficiency on both sides of the Atlantic could be improved. Copyright 2002 by Blackwell Publishers Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal International Finance.

    Volume (Year): 5 (2002)
    Issue (Month): 3 (Winter)
    Pages: 437-61

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    Handle: RePEc:bla:intfin:v:5:y:2002:i:3:p:437-61

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    Cited by:
    1. Chelley-Steeley, Patricia, 2005. "Explaining volatility and serial correlation in opening and closing returns: A study of the FT-30 components," Global Finance Journal, Elsevier, vol. 16(1), pages 1-15, August.
    2. Robert Kelly, 2008. "Opening and Closing Asymmetry: Empirical Analysis from ISE Xetra," The Economic and Social Review, Economic and Social Studies, vol. 39(1), pages 55-78.
    3. Ikram ul Haq & Kashif Rashid, 2014. "Stock Market Efficiency and Size of the Firm: Empirical Evidence from Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(1), pages 10-31, March.
    4. Chelley-Steeley, Patricia, 2009. "Price synchronicity: The closing call auction and the London stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 777-791, December.
    5. Robert Rutledge & Zhaohui Zhang & Khondkar Karim, 2008. "Is There a Size Effect in the Pricing of Stocks in the Chinese Stock Markets?: The Case of Bull Versus Bear Markets," Asia-Pacific Financial Markets, Springer, vol. 15(2), pages 117-133, June.
    6. Chelley-Steeley, Patricia L., 2008. "Market quality changes in the London Stock Market," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2248-2253, October.
    7. Pagano, Michael S. & Peng, Lin & Schwartz, Robert A., 2013. "A call auction's impact on price formation and order routing: Evidence from the NASDAQ stock market," Journal of Financial Markets, Elsevier, vol. 16(2), pages 331-361.
    8. Gary Tian & Mingyuan Guo, 2007. "Interday and intraday volatility: Additional evidence from the Shanghai Stock Exchange," Review of Quantitative Finance and Accounting, Springer, vol. 28(3), pages 287-306, April.
    9. Pagano, Michael S. & Peng, Lin & Schwartz, Robert A., 2008. "The quality of price formation at market openings and closings: Evidence from the Nasdaq stock market," CFS Working Paper Series 2008/45, Center for Financial Studies (CFS).

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