Observable Consequences of Trading Structure Differences: On the Use of Variance Ratios in Microstructure Studies

Observable Consequences of Trading Structure Differences: On the Use of Variance Ratios in... This paper examines the variance ratio tests in studies of transitory volatility and concludes that the variance ratio is an appropriate test of trading structure differences only under certain assumptions regarding the evolution of underlying stock prices and the autocorrelation structure of returns. This result raises caution as to the interpretation of results bases upon the 24-hour variance ratio methodologies in studies of transitory volatility and trading structure effects. A numerical example indicates that errors in inferences can be severe. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Observable Consequences of Trading Structure Differences: On the Use of Variance Ratios in Microstructure Studies

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1023050226457
Publisher site
See Article on Publisher Site

Abstract

This paper examines the variance ratio tests in studies of transitory volatility and concludes that the variance ratio is an appropriate test of trading structure differences only under certain assumptions regarding the evolution of underlying stock prices and the autocorrelation structure of returns. This result raises caution as to the interpretation of results bases upon the 24-hour variance ratio methodologies in studies of transitory volatility and trading structure effects. A numerical example indicates that errors in inferences can be severe.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 4, 2004

References

  • Volatility, Efficiency, and Trading: Evidence from the Japanese Stock Market
    Amihud, Y.; Mendelson, H.
  • Information Flow and Pricing Errors: A Unified Approach to Estimation and Testing
    George, T.; Hwang, C.
  • Components of the Bid-Ask Spread and the Statistical Properties of Transaction Prices
    Glosten, L.

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