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A Trading Desk’s View of Market QualityVolatility in U.S. and European Equity Markets: An Assessment of Market Quality

A Trading Desk’s View of Market Quality: Volatility in U.S. and European Equity Markets: An... CHAPTER 8: VOLATILITY IN U.S. AND EUROPEAN EQUITY MARKETS: AN ASSESSMENT OF MARKET QUALITY Deniz Ozenbas, Assistant Professor of Finance, Montclair State University Robert Schwartz, Speiser Professor of Finance, Zicklin School of Business, Baruch College, CUNY Robert Wood, Distinguished Professor of Finance, The University of Memphis 1. INTRODUCTION Volatility is like cholesterol – there is both good volatility and bad volatility. Good volatility characterizes price adjustments that are attributable to news. Bad volatility characterizes price changes that are attributable to transaction costs. Bad volatility is manifest in accentuated price swings, the runs and reversals that occur over relatively brief trading intervals in response to the arrival of buy and sell orders in the market. We suggest that an objective of market structure is to control bad volatility. However, it should also be recognized that, to some extent, short-run volatility must be accentuated so as to appropriately compensate liquidity providers (i.e., broker-dealer intermediaries and limit order traders). This paper examines the association between the accentuated intra- day price swings and market quality. To this end, we empirically This chapter is reprinted, with permission, from D. Ozenbas, R. Schwartz, and R. Wood, International Finance, Blackwell Publishers, Volume 5 Number 3, Winter http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Trading Desk’s View of Market QualityVolatility in U.S. and European Equity Markets: An Assessment of Market Quality

Part of the Zicklin School of Business Financial Markets Conference Series Baruch College Book Series
Editors: Schwartz, Robert A.; Byrne, John Aidan; Colaninno, Antoinette
Ozenbas, Deniz; Schwartz, Robert; Wood, Robert
Springer Journals — Jan 1, 2005
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25 pages

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Publisher
Springer US
Copyright
© Kluwer Academic Publishers Boston 2005
ISBN
978-1-4020-7510-0
Pages
151 –176
DOI
10.1007/0-387-23114-5_8
Publisher site
See Chapter on Publisher Site

Abstract

CHAPTER 8: VOLATILITY IN U.S. AND EUROPEAN EQUITY MARKETS: AN ASSESSMENT OF MARKET QUALITY Deniz Ozenbas, Assistant Professor of Finance, Montclair State University Robert Schwartz, Speiser Professor of Finance, Zicklin School of Business, Baruch College, CUNY Robert Wood, Distinguished Professor of Finance, The University of Memphis 1. INTRODUCTION Volatility is like cholesterol – there is both good volatility and bad volatility. Good volatility characterizes price adjustments that are attributable to news. Bad volatility characterizes price changes that are attributable to transaction costs. Bad volatility is manifest in accentuated price swings, the runs and reversals that occur over relatively brief trading intervals in response to the arrival of buy and sell orders in the market. We suggest that an objective of market structure is to control bad volatility. However, it should also be recognized that, to some extent, short-run volatility must be accentuated so as to appropriately compensate liquidity providers (i.e., broker-dealer intermediaries and limit order traders). This paper examines the association between the accentuated intra- day price swings and market quality. To this end, we empirically This chapter is reprinted, with permission, from D. Ozenbas, R. Schwartz, and R. Wood, International Finance, Blackwell Publishers, Volume 5 Number 3, Winter

Published: Jan 1, 2005

Keywords: Price Change; Trading Cost; Price Discovery; Transaction Price; Market Impact

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