A trading desk's view of market quality by Robert Alan Schwartz, John Aidan Byrne, Antoinette Colaninno

By Robert Alan Schwartz, John Aidan Byrne, Antoinette Colaninno

This booklet relies at the lawsuits of a one-day convention on industry caliber, held on the Zicklin college of commercial on April 30, 2002. a number of the questions addressed during this booklet are: How may still marketplace caliber be outlined, measured, monitored and more advantageous? what's the proof in regards to the present nation of our markets? How powerful have contemporary options been? How will we greater meet our investor wishes?

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Chapter 1: Recent Evidence on Market Quality 25 Exhibit 12. S. ” Exhibit 12 shows that buy-side participants are more frequently breaking their orders up for submission to the market over a succession of trades. Consistently, Exhibit 13 reveals that sellside participants are being shown less of total order size compared to before 1997. Exhibit 13. S. ” 26 A Trading Desk’s View of Market Quality What is the impact of this? The markets are less transparent. Further, as a consequence, the answers displayed in Exhibit 14 indicate that the sellside overwhelmingly believes that market making is more difficult than it was before 1997.

There is no way to use Black-Scholes to estimate the implied volatility since there is no price that is disseminated throughout the day. You need to do your own calculations and estimation of the volatility. If it is an exchange traded option, where prices are available, I would typically use what the options market tells me the volatility is. This is the easiest way to get information from the market. KRELL: Over what period of time do you measure volatility? Is it a specific period? WOLF: When it comes to options, I would typically use 30 days to three months.

For each of the five markets we have examined, we broke the 2000-trading year into two periods. The findings for each market and period are shown in Exhibit 26 (see page 167). 9 Exhibit 26 shows the normalized volatility numbers for the five markets for the first and the last half-hour intervals, for the closing call auction10 (where applicable), for open-to-close price changes, and for the one-day, one-week, and two-week differencing intervals. For the five markets and two assessment periods, all values for the first half-hour volatility are greater than the benchmark value of 1.

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