Abstract

http://ssrn.com/abstract=8424
 
 

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SOES Trading and Market Volatility


Robert H. Battalio


University of Notre Dame - Department of Finance

Brian C. Hatch


University of Cincinnati - Department of Finance - Real Estate

Robert H. Jennings


Indiana University - Kelley School of Business


J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, June 1997

Abstract:     
The National Association of Security Dealers alleges that professional-trader use of the Small Order Execution System (SOES) causes greater security price volatility. We document bidirectional Granger causality between a proxy for professional SOES trading (the frequency of maximum-sized SOES trades) and a measure of stock price volatility. We find that high levels of volatility precede high levels of maximum-sized SOES trades, suggesting that volatility causes more frequent large SOES trades. Likewise, over a one- minute time interval, high levels of maximum-sized SOES trades cause high volatility. Over five-minute periods, however, intense maximum-sized SOES trading causes lower volatility. Interpreted in conjunction with Harris and Schultz (1997), these results suggest that high levels of maximum-sized SOES trades lead to more efficient price discovery. In light of these results, we believe that efforts to eliminate SOES based on volatility considerations are unwarranted.

JEL Classification: G12, G14

Accepted Paper Series


Not Available For Download

Date posted: July 16, 1997  

Suggested Citation

Battalio, Robert H. and Hatch, Brian C. and Jennings, Robert H., SOES Trading and Market Volatility. J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, June 1997. Available at SSRN: http://ssrn.com/abstract=8424

Contact Information

Robert H. Battalio (Contact Author)
University of Notre Dame - Department of Finance ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)
Brian C. Hatch
University of Cincinnati - Department of Finance - Real Estate ( email )
Carl H. Lindner Hall
P.O. Box 210195
Cincinnati, OH 45221
United States
513-556-7076 (Phone)
513-556-0979 (Fax)
Robert H. Jennings
Indiana University - Kelley School of Business ( email )
1309 East Tenth Street
Bloomington, IN 47405-1701
United States
812-855-2696 (Phone)
812-855-5875 (Fax)
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