Intra Day Bid-Ask Spreads, Trading Volume and Volatility: Recent Empirical Evidence from the London Stock Exchange

30 Pages Posted: 12 Jul 2004

See all articles by Kevin Keasey

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Charlie X. Cai

University of Liverpool Management School

Robert Hudson

Hull University Business School (HUBS)

Abstract

With the benefit of very high frequency (25 million 1 minute observations) and recent data (2001) for the UK, this paper explores a number of intra day patterns of stock market behaviour. More specifically, a distinct reverse J shaped bid-ask spread pattern is noted for SETS securities, a declining bid-ask spread pattern for non-SETS securities, a two hump pattern for trading volume and a U-shaped pattern for returns volatility for all securities. In terms of complementing the existing literature, the paper shows that differences in trading systems may affect the bid-ask spread patterns, while differences in market environments (i.e. US and UK markets) seems to affect the trading volume pattern. The paper suggests avenues for future research, in particular, the need to consider what factors are significant in determining intra day patterns for different trading systems and the need for additional cross-market comparisons to identify how institutional factors affect the behaviour of investors on an intra day basis.

Suggested Citation

Keasey, Kevin and Cai, Charlie Xiaowu and Hudson, Robert, Intra Day Bid-Ask Spreads, Trading Volume and Volatility: Recent Empirical Evidence from the London Stock Exchange. Journal of Business Finance & Accounting, Vol. 31, No. 5-6, pp. 647-676, June 2004. Available at SSRN: https://ssrn.com/abstract=563431

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

Charlie Xiaowu Cai

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Robert Hudson (Contact Author)

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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