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| Author: | Chelley-Steeley, P. |
| Title: | Noise and the trading mechanism: the case of SETS |
| Journal: | European Financial Management
2005 : JUN, VOL 11:3, p. 387-424 |
| Index terms: | Stock markets Stock exchanges Securities Trading Information systems Case studies United Kingdom |
| Language: | eng |
| Abstract: | In Oct. 1997, the London Stock Exchange (LSE) introduced a new trading (henceforth as: trad.) system called SETS, which was to replace the dealer system SEAQ in operation since 1986. Using the iterative sum of squares test introduced by Inclan and Tiao (1994), it is investigated whether there was a change in the unconditional variance (here as: u-var.) of opening and closing returns (here as: o-and-c-rets.) at the time SETS was introduced. It is shown that for the FTSE-100 stocks traded on SETS, on the days following its introduction, there was a widespread increase in the volatility of both o-and-c-rets. However, no synchronous volatility changes were found to be associated with the FTSE-100 index or FTSE-250 stocks. It is concluded that the introduction of the SETS trad. mechanism caused an increase in noise at the time the system was introduced. |
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