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. 부 CE61 1934 1948 1941 1942 1944 1946 1947 1948 1949 1950 I561 2361 ES61 1954 1956 1958 6361 2961 1961 MONTHLY INTERQUARTILE RANGE OF DAY-TO-DAY PERCENT CHANGES 1973 1974 5461 1976 AGGREGATE NYSE VOLATILITY: 1928 - 1976 MAR APR MAY JUN JLY AUG SEP OCT NOV DEC ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** 1966 0.40 0.70 1967 1968 1969 1970 1971 1972 1973 0.75 0.57 1.56 0.71 0.61 0.49 0.75 0.72 0.69 0.58 1.17 0.92 0.70 0.72 0.67 0.94 0.54 0.74 1.11 0.85 0.55 0.67 0.73 1.65 0.94 1.03 0.69 0.70 2.55 1.23 1.37 0.58 0.56 0.43 0.52 0.73 0.66 0.46 1.62 0.65 0.59 0.46 0.59 0.63 0.76 0.56 0.89 0.76 0.36 1.05 0.47 1.15 1.34 1.11 1.72 2.05 1.02, 0.99 1.01 0.81 1974 2.02 1.03 1.35 1.47 1.09 1.48 2.07 2.20 3.04 2.58 1.70 1975 1.84 1.36 1.65 1.62 1.62 0.82 0.97 1.64 1.44 1.25 0.70 1976 1.65 1.26 1.17 1.01 1.11 0.78 0.73 0.95 0.65 0.95 1.44 0.96 1.16 1.15 1.15 0.75 0.38 * BASED ON DAY-TO-DAY CHANGES IN THE STANDARD & POORS COMPOSITE 416 MJS DM JSD MJ SDM JS D M J S D 1972 1973 1974 1975 OFFICE OF ECONOMIC RESEARCH: BRANCH OF MARKET TRADINE ACTIVITY 1976 NO38– ' STEPON' 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. |