IngentaConnect Bid-ask Spreads, Trading Volume and Volatility: Intra-day Evidenc...

Authors: Abhyankar, A.¹; Ghosh, D.²; Levin, E.²; Limmack, R.J.¹

Source: Journal of Business Finance & Accounting, Volume 24, Number 3, April 1997 , pp. 343-362(20)

Abstract:

This paper examines intra-day variations in the bid-ask spread, volatility and volume for stocks traded on the London Stock Exchange. The data set used consists of quote and transactions data for a large sample of 835 stocks traded during the first quarter of 1991. The focus of the study is twofold; first, is to document a number of stylized facts regarding the intra-day behaviour of spread, trading volume, volatility etc. Second, the paper tests some predictions of two theoretical models of intra-day behaviour: the Admati and Pfleiderer and the Brock and Kleidon models. In addition, the paper also studies qualitatively the intra-day behaviour of several variables of interest including volume per transaction, transactions per fifteen-minute interval and spreads/trading volume for stocks of differing liquidity. The results suggest that the bid-ask spread is wide at the open, constant through the day and rises slightly at the close. Trading volume, in contrast is not highest at the open and the close. Volatility, based on the mid-point of the inside spread, shows a U-shaped pattern. Volume per transaction, in contrast, is fairly constant throughout the day. Further, the intra-day trading volume pattern differs for liquid and illiquid stocks. The results provide mixed support for current theoretical models of intra-day behaviour of spread, volume and volatility on the London Stock Exchange

Keywords: market microstructure; intra-day patterns; seasonalities; equity markets; transactions data

Document Type: Original article

DOI: 10.1111/1468-5957.00108

Affiliations: 1: Department of Accountancy and Finance, University of Stirling, Scotland, 2: Department of Economics, University of Stirling, Scotland

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Bid-ask Spreads, Trading Volume and Volatility: Intra-day Evidence from the London Stock Exchange