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Volatility in US and European Equity Markets: An Assessment of Market Quality
Author(s) -
Ozenbas Deniz,
Schwartz Robert A.,
Wood Robert A.
Publication year - 2002
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/1468-2362.00103
Subject(s) - volatility (finance) , economics , equity (law) , volatility swap , financial economics , volatility smile , stock exchange , volatility risk premium , monetary economics , implied volatility , econometrics , finance , political science , law
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 Börse. In each of these markets, we observe a U–shaped intra–day volatility pattern, a particularly sharp spike for the opening half hour, and a general level of intra–day volatility that is accentuated vis–à–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.