Finance Seminar with Joel Hasbrouck, New York University

The Department of Finance is proud to announce the upcoming seminar with Joel Hasbrouck, Stern School of Business, New York University

Joel Hasbrouck will present

High Frequency Quoting: Short-Term Volatility in Bids and Offers

Abstract

High frequency changes, reversals, and oscillations induce volatility in a market’s bid and offer quotes. This volatility degrades the informational content of the quotes, exacerbates execution price risk for marketable orders, and impairs the reliability of the quotes as reference marks for the pricing of dark trades. This paper examines variance on time scales as short as fifty milliseconds for the National Best Bid and Offer (NBBO) in the US equity market. On average, in a 2011 sample, NBBO variance at the fifty millisecond time scale is approximately four times larger than can be attributed to long-term fundamental price variance. The historical picture is complex. There is no marked upward trend in short-term quote volatility over 2001-2011. Its character, though, has changed. In the early years (and especially prior to Reg NMS) quote volatility is driven by large spikes in bids and offers. In later years it is more a consequence of high frequency oscillations comparable to the bid-offer spread in magnitude.

See the full paper here

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