Volatility and market structure |
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Authors: | Kenneth A. Kavajecz Elizabeth R. Odders-White |
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Affiliation: | a Finance Department, The Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6367, USA;b Finance Department, University of Wisconsin-Madison, 975 University Avenue, Madison, WI 53706, USA |
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Abstract: | This study examines volatility within three related intra-day series – transaction returns, quote midpoint returns, and limit order book midpoint returns – for a set of NYSE-listed stocks. We document statistically significant GARCH effects both overall and surrounding earnings announcements in all three series for the majority of stocks in the sample. We then compare the extent of volatility clustering among the series. In addition, the relation between volatility and market structure is examined via a set of cross-sectional regressions, and relations among the series over time are studied in a vector autoregressive framework. |
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Keywords: | Market microstructure Limit order book Volatility GARCH |
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