Market microstructure study on seven US stock exchanges: panel vs. VAR methodology

Krishnamurti, Chandrasekhar and Sevic, Aleksandar and Sevic, Zeljko (2005) Market microstructure study on seven US stock exchanges: panel vs. VAR methodology. Managerial Finance, 31 (12). pp. 79-108. ISSN 0307-4358


This article questions the validity of regression models when high correlations exist between independent variables and presents the application of VAR as an alternative technique through the comparison of two groups of selected stocks that represent components of Dow Jones and S&P 500 indices, respectively. The results indicate that panel regressions face serious specification problems, while the impulse response function underlines that the shock to the volume innovation has a mostly positive impact on the volatility in both S&P and Dow Jones sample, but the tendency cannot be easily accounted for. The positive impact of volatility shocks on the inter market depth is rather unexpected, but it may be associated with an increase in volume that does not enormously enhance the spread up to the point where it will be too costly for market-makers to trade, and accordingly, quickly narrows the spread to absorb new liquidity influx in the market. In the Granger causality tests Dow Jones stocks with comparatively larger average volume depth values and price levels provide slightly stronger relations between analyzed variables compared to the stocks included in the S&P sample.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to paper due to publisher copyright restrictions.
Faculty/School / Institute/Centre: Historic - Faculty of Business - Department of Accounting
Date Deposited: 29 Nov 2011 00:28
Last Modified: 16 Oct 2014 00:09
Uncontrolled Keywords: stock exchanges; stock market volatility
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
14 Economics > 1403 Econometrics > 140302 Econometric and Statistical Methods
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
Identification Number or DOI: 10.1108/03074350510770035

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