Explanatory Note

Volatility of New York Stock Exchange

Listed Stocks

Stock price volatility refers to the extent to which stock prices change on a day-to-day basis.

Aggregate monthly price volatility on the NYSE is reflected in a dispersion measure of day-to-day percent change in the Standard and Poors Composite Index; the S&P 500 was chosen because of its breadth and historical coverage enabling a review of volatility back to 1928. The day-to-day percent changes for any interval when ranked from low to high are divided into four "equal" groups by the First, Second and Third quartiles. The difference between the Third and First quartiles, a widely used measure of dispersion and always a positive number, is the interquartile range. The interquartile range - which is the measure of volatility -- is not sensitive to the magnitude of monthly extremes but will indicate shifts in the frequency or relative number of large dayto-day changes. These attributes filter out the impact of short-term shocks and enable identification of months characterized by relatively high price volatility.

A more detailed description of the statistical approaches used by the SEC staff in developing this measure of NYSE volatility is available from Raymond Marcotte of the SEC's Office of Economic Research in a staff paper entitled Analysis of the Impact of Competitive Commission Rates on Aggregate Price Volatility of NYSE Stock.

OFFICE OF ECONOMIC RESEARCH: BRANCH OF MARKET TRADING ACTIVITY

9830-'STEPØS'

AGGREGATE NYSE VOLATILITY: 1928 - 1976

YEAR

****

1928

1929

1930

JAN FEB MAR APR MAY JUN JLY AUG SEP
***** ***** ***** ***** ***** ***** ***** ***** *****
1.28 0.58 1.13 1.09
0.86 1.92 2.01 1.26
1.10 1.73 1.18 1.31

0.97

3.39

OCT NOV DEC ***** ***** ***** 1.63 2.05 0.89 0.82 0.76 0.85 0.86 1.56 1.61 0.99 0.95 1.30 1.63 4.57 7.20 3.02 2.24 1.42 1.76 3.37 2.92 2.39

1965

0.23 0.65

1969

1970

0.31 0.37 0.80 1.39 0.56 0.35 0.62 0.38 0.40 0.42 1966 0.40 0.70 0.75 0.57 1.56 0.65 0.95 1.44 0.96 1.16 1.15 0.75 1967 0.71 0.61 0.49 0.75 0.72 0.69 0.38 0.56 0.52 0.79 0.89 0.58 1968 0.58 1.17 0.92 0.70 0.72 0.67 0.94 0.54 0.43 0.70 0.37 0.51 0.74 1.11 0.85 0.55 0.67 0.73 1.65 0.86 1.00 0.86 0.58 1.10 0.94 1.03 0.69 0.70 2.55 1.23 1.37 1.21 0.87 0.95 1.03 0.56

1971

1972

1973

1974

1975

1976

0.58 0.56 0.43 0.52 0.73 0.66 0.46 1.62 0.65 0.69 1.14 0.95
0.59 0.46 0.59 0.63 0.76 0.56 0.89 0.76 0.36 1.05 0.76 0.74
0.47 1.15 1.34 1.11 1.72 2.05 1.02 0.99
0.99 1.01 0.81 1.92 3.16
2.02 1.03 1.35 1.47 1.09 1.48 2.07 2.20 3.04 2.58 1.70 1.87
1.84 1.36 1.65 1.62 1.62 0.82 0.97 1.64 1.44 1.25 0.70 1.12
1.86 1.26 1.17

* BASED ON DAY-TO-DAY CHANGES IN THE STANDARD & POORS COMPOSITE
INDEX. DAY-TO-DAY PERCENT CHANGES WITHIN EACH MONTH ARE RANKED
FROM LOW TO HIGH AND THE FIRST AND THIRD QUARTILES ARE COMPUTED
AND DIFFERENCED. THIS RANGE, THE INTERQUARTILE, IS USED AS THE
MEASURE OF AGGREGATE MONTHLY PRICE VOLATILITY ON THE NYSE.

Office of Economic Research Branch of Market Trading Activity

EXPLANATORY NOTE

Aggregate NYSE Liquidity

Aggregate liquidity refers to the responsiveness of stock price changes to transaction demand.

The liquidity index is computed by comparing daily price changes for Standard and Poors Composite Index to the daily turnover of NYSE shares outstanding. For every trading day during the month the natural logarithm of the price relative is computed. Then the daily turnover rate is computed-the ratio of share volume to shares outstanding. Finally, the square of the log price relative is divided by the turnover rate, and this quantity averaged over the entire month. This average, recorded on an inverted logarithmic scale, is the monthly estimate of liquidity.

A detailed description of the statistical model which yields these estimates of liquidity is available from Peter Martin of the Securities and Exchange Commission, Office of Economic Research in a staff paper entitled Analysis of the Impact of Competitive Rates on the Liquidity of NYSE Stocks.