Accentuated Intraday Stock Price Volatility

Intraday volatility smile: Effects of fragmentation and high frequency trading on price efficiency

“…The normalized trade-based volatility ratio for the first half-hour on NYSE Euronext Paris is considered as the dependent variable (NV Ratio at the opening). Similar to Ozenbas et al (2011), we expect a positive relationship between the trading activity and the normalized volatility ratio of first half-hour for the large stocks.…”

“…Next, we address the issue of relationship between fragmentation and market efficiency. For this purpose, we use the normalized volatility ratio developed by Ozenbas et al (2002) and Ozenbas et al (2011). This ratio captures the fact that, in an efficient market, prices should be approximated by a random walk 5 because efficient markets are not predictable.…”

“…For the Post-MiFID in 2012-2013, it is 95% higher compared to the similar time intervals in the middle of the day. The amplified volatility and the relative inefficiency of price determination at market openings can be attributed to the complexity of price discovery following a period of non-trading, to the relatively heavy information releases, to the misestimation of true equilibrium value at the opening of the day (see Ozenbas et al (2011)). Thus, a spike in the first half-hour would be an inverse measure of market quality and price efficiency.…”

“…Consequently, the following parameters are considered as explanatory variables: the logarithm of monthly average price, the logarithm of monthly average volume, the monthly average volatility (the standard deviation of open-to-close daily returns for each stock per month), the logarithm of the opening half-hour number of trades for each stock per month, and the logarithm of the opening half-hour volume estimated for each stock per month. These variables are also used in Ozenbas et al (2011), andO'Hara andYe (2011).…”

Social responsibility of a stock exchange: Corporate governance at Borsa Istanbul

“…These mispriced securities create an inefficient market where confidence of traders for fair treatment diminishes. Studies by Ozenbas et al (2011), Madhavan et al (1997), and others have documented a U-shaped volatility pattern in developed country stock exchanges. This shape has indicated high volatility and uncertainty in the morning when the market opens, a low and stable volatility during the middle of the trading day, and heightened volatility before the close of the market.…”