Volatility Zicklin School of Business Financial Markets Series Robert A Schwartz, Editor Baruch College/CUNY Zicklin School of Business New York, NY, USA Other Books in the Series: Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Technology and Regulation Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Competition in a Consolidating Environment Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: The New NASDAQ Marketplace Schwartz, Robert A., Byme, John A., Colaninno, Antoinette: Electronic vs Floor Based Trading Schwartz, Robert A., Byrne, John A Colaninno, Antoinette: Coping with Institutional Order Flow Schwartz, Robert A., Byrne, John A Colaninno, Antoinette: A Trading Desk View of Market Qualily Schwartz, Robert A., B y r e , John A., Colaninno, Antoinette: Call Auction Trading: New Answers to Old Questions Schwartz, Robert A.: and Colaninno, Antoinette: Regulation of U.S Equity Markets For other titles published in this series, go to www.springer.com/series/7133 Robert A Schwartz • John Aidan Byrne Antoinette Colaninno Editors Volatility Risk and Uncertainty in Financial Markets Editors Robert A Schwartz Department of Finance Zicklin School of Business Baruch College, CUNY New York, NY USA robert.schwartz@baruch.cuny.edu John Aidan Byrne 169 Chestnut Terrace Rockaway, NJ USA Antoinette Colaninno Zicklin School of Business Baruch College, CUNY New York, NY USA antoinette.colaninno@baruch.cuny.edu ISBN 978-1-4419-1473-6 e-ISBN 978-1-4419-1474-3 DOI 10.1007/978-1-4419-1474-3 Springer New York Dordrecht Heidelberg London © Springer Science+Business Media, LLC 2011 All rights reserved This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Contents List of Participants vii Conference Sponsors ix Preface xi Chapter 1: Intraday Volatility: The Empirical Evidence Chapter 2: Opening Address: Reto Francioni 19 Chapter 3: What Is Happening With Financial Market Volatility and Why? 29 Chapter 4: Volatility and Technology 47 Chapter 5: Volatility and Market Structure 65 Chapter 6: Implications for Trading 85 Chapter 7: Closing Dialog: Sandy Frucher and Erin Burnett 99 Chapter 8: Accentuated Intraday Stock Price Volatility 111 Participant Biographies 127 List of Participants Robert Almgren New York University George Bodine Erin Burnett Ian Domowitz Brendan Doran General Motors Investment Management Ewing Marion Kauffman Foundation CNBC Investment Technology Group Chi-X Europe Limited Robert Engle Stern School of Business, NYU Reto Francioni Sandy Frucher William Geyer Ken Hight Brian Hyndman Tim Mahoney Terrence Martell Deutsche Börse AG The NASDAQ OMX Group JonesTrading Institutional Services, LLC Commodity Futures Trading Commission Liquidnet, Inc The NASDAQ OMX Group Bids Trading Baruch College, CUNY Albert J Menkveld VU University Amsterdam Harold Bradley Al Goll Adjunct Professor of Mathematical Finance Director of Trading Chief Investment Officer Anchor and Reporter Managing Director Vice President, Business Development Michael Armellino Professor of Finance, Nobel Laureate 2003 CEO Vice Chair CEO and President Auditor Head of Global Equities Senior Vice President CEO Director, Weissman Center for International Business, Saxe Distinguished Professor of Finance Associate Professor of Finance List of Participants Matt Moran viii Larry Tabb Grant Vingoe Henri Waelbroeck Chicago Board Options Exchange RKA Inc Montclair State University Villanova University Rosenblatt Securities Inc NYSE Euronext PDQ Enterprises, LLC Federal Reserve Bank of New York FBN Securities Inc ICAP Electronic Broking Baruch College, CUNY Morgan Stanley Investment Management The Tabb Group Arnold and Porter Pipeline Trading Systems Joseph Wald Robert Wood Liuren Wu Knight Capital/EdgeTrade University of Memphis Baruch College, CUNY Joe Rosen Deniz Ozenbas Michael Pagano Richard Rosenblatt James Ross Keith Ross Asani Sarkar Stephen Sax Alec Schmidt Robert Schwartz Robert Shapiro Vice President President Associate Professor of Finance Professor of Finance CEO Vice President NYSE Crossing CEO Economist Vice President Senior Analyst Speiser Professor of Finance Executive Director Founder and CEO Partner Vice President, Director of Research Managing Director Distinguished Professor of Finance Associate Professor of Finance Conference Sponsors Bids Trading Deutsche Börse AG International Securities Exchange Investment Technology Group JonesTrading Institutional Services, LLC Knight/EdgeTrade Liquidnet, Inc NYSE Euronext PDQ Enterprises, LLC Pipeline Trading Systems Rosenblatt Securities Inc The NASDAQ OMX Group White Cap Trading LLC Chapter 8: Accentuated Intraday Stock Price Volatility 123 stocks fare worse compared to mid and small cap stocks for all three metrics during this year as well Panel A: Year 2004 RSQ1 RRD NV ESTIMATE T-Statistic ESTIMATE T-Statistic ESTIMATE T-Statistic Opening Total Volume Opening No Of Trades Monthly Variance Total Volume Average Price Mid Cap Dummy Small Cap Dummy MidCap * Opening Total Volume SmallCap * Opening Total Volume MidCap * Opening No Of Trades SmallCap * Opening No Of Trades LSE Dummy -8.8E-09 1.5E-05 -1.1E-01 6.2E-10 -1.2E-04 -4.8E-01 -3.7E-01 2.4E-09 -3.5E-09 -1.4E-05 -1.1E-05 -5.8E-01 -1.37 3.62 -0.34 1.48 -1.41 -8.71 -6.16 0.49 -0.07 -3.43 -0.56 -9.24 -1.5E-07 6.0E-05 8.0E-01 1.2E-08 7.7E-04 -4.8E-01 -2.2E+00 4.8E-08 -4.0E-07 -5.4E-05 4.1E-04 -1.6E+00 -6.79 4.41 0.78 8.35 2.81 -2.59 -10.99 2.94 -2.49 -3.83 6.05 -7.92 -3.1E-08 6.1E-06 1.3E-01 2.7E-09 2.1E-04 1.0E-01 -3.1E-01 1.0E-08 -4.1E-08 -6.5E-06 7.8E-05 -4.7E-01 -7.60 2.38 0.68 10.18 4.08 2.95 -8.08 3.39 -1.35 -2.46 6.11 -11.96 Panel B: Year 2000 RSQ1 Opening Total Volume Opening No Of Trades Monthly Variance Total Volume Average Price Mid Cap Dummy Small Cap Dummy MidCap * Opening Total Volume SmallCap * Opening Total Volume MidCap * Opening No Of Trades SmallCap * Opening No Of Trades LSE Dummy RRD NV ESTIMATE T-Statistic ESTIMATE T-Statistic ESTIMATE T-Statistic -1.2E-09 1.0E-06 1.6E+01 1.9E-10 2.2E-04 -3.2E-01 -4.7E-01 1.1E-08 5.6E-08 3.5E-06 -5.8E-06 -3.2E-01 -0.28 0.42 3.04 0.84 3.17 -4.47 -6.41 0.61 0.73 0.31 -0.15 -4.22 -4.4E-08 1.1E-05 9.3E+01 1.5E-09 7.0E-05 -2.5E+00 -4.2E+00 6.8E-08 3.1E-07 2.4E-06 1.7E-04 2.7E+00 -3.26 1.44 5.49 2.15 0.33 -11.10 -18.18 1.20 1.29 0.07 1.41 11.46 -9.4E-09 2.5E-07 1.9E+01 3.9E-10 1.8E-05 -4.6E-01 -8.9E-01 1.7E-08 1.0E-07 -4.8E-06 3.4E-05 3.4E-01 -4.01 0.19 6.41 3.23 0.47 -11.60 -22.41 1.73 2.37 -0.77 1.62 8.30 Exhibit 31 Multivariate Analysis Results – We run the regression specified in Section 4, Part of the text separately for each metric and calendar year The parameter estimates and t-statistics for 2004 and 2000 are provided in Panels A and B, respectively The sample for Panel A consists of all stocks included in the study during the year 2004 across all markets and capitalization sizes (4,920 observations) The sample for Panel B consists of all stocks included in the study during the year 2000 across all markets and capitalization sizes (5,016 observations) As noted, we have included average price, average monthly volume and volatility as control variables These variables are not significant for the year 2004 But, as one might expect given the stock market crash of 2000, monthly volatility is positively related to our dependent variables in these regressions This indicates a difficult price discovery process for the more volatile stocks during year 2000 Finally, the LSE dummy is significant for both years This confirms the difference in market quality between the U.S and non-U.S stocks but does not, in and of itself, suggest a specific cause Conclusion Using three different measures of market quality, we have, for two different years (2000 and 2004), examined the level of price discovery noise for stocks that trade on the New York Stock Exchange, the NASDAQ Stock 124 Volatility Market, and the London Stock Exchange In so doing, we have focused on the most stressful periods of the day, the open and the close For all of our samples, the intra-day volatility pattern is U-shaped Additionally, very consistently for both years and all three market centers (1) market quality at the open for large cap stocks is worse than it is for small and medium cap stocks and relative trading volume for the large caps is higher, while (2) there is no such relationship between market quality, volume, and cap size at the close of trading The findings indicate that price determination is relatively inefficient at market openings, and suggest that the inefficiency is attributable, in part at least, to the complexity of price discovery following a period of non-trading and relatively heavy information release The close of trading is also stressful (largely because traders are looking to close out their positions before the over-night non-trading period), and volatility at the close is accentuated relative to its mid-day values But unlike at the opening, the closing volatility accentuation does not differ systematically with cap size The positive cap size, volatility relationship at the open and the relatively heavy large cap volume at that time, along with the absence of a cap size-volatility relationship at the close, can be explained by big caps leading smaller caps in price discovery at the open And so, (1) because large cap stocks exhibit accentuated volatility at the open, and (2) if they in fact lead the mid and small caps in finding new equilibrium values, then (3) one can safely infer that it is the complexities of price discovery that underlie the widely observed volatility accentuation in the opening period We also conclude that, all things considered, intra-day volatility is, indeed, a complex variable References Amihud, Y., H Mendelson, and, B Lauterbach,1997, ‘Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange.’ Journal of Financial Economics, Volume 45, pp 365-390 Bessembinder, Hendrik and Subhrendu Rath, 2008, ‘Trading Costs and Return Volatility: Evidence from Exchange Listings,’ Market Liquidity, Elsevier Publishing Bozcuk, Aslihan, and M Ameziane Lasfer, 2005, ‘The Information Content of Institutional Trades on the London Stock Exchange,’ Journal of Financial and Quantitative Analysis 40, 621-644 Chan, K, W Christie and P Schultz, 1995, Market Structure and the Intraday Pattern of Bid-Ask Spreads for NASDAQ Securities, Journal of Business 68, 35-60 Cohen, Kalman J., Gabriel A Hawawini, Steven F Maier, Robert A Schwartz, and David K Whitcomb, 1983, ‘Estimating and Adjusting for the Chapter 8: Accentuated Intraday Stock Price Volatility 125 Intervalling-effect Bias in Beta.’ Management Science Volume 29, pp.135148 Ellul, Andrew, Shin, Hyun Song, and Ian Tonks, 2005, ‘Opening and Closing the Market: Evidence from the London Stock Exchange,’ Journal of Financial and Quantitative Analysis 40, 779-801 Fleming, Michael J, and Eli M Remolina, 1999, ‘Price Formation and Liquidity in the US Treasury Market: The Response to Public Information,’ Journal of Finance 5, 1901-1915 Freider, Laura, and Avanidhar Subrahmanyam, 2005, ‘Brand Perceptions and the Market for Common Stock,’ Journal of Financial and Quantitative Analysis 40, 57-85 Hasbrouck, Joel and Robert A Schwartz, 1988, ‘Liquidity and Execution Costs in Equity Markets,’ Journal of Portfolio Management, Spring, 10 - 16 Lo, Andrew and A C MacKinlay, 1988, ‘Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test,’ Review of Financial Studies 1, 41-66 Menyah, Kojo, and Krishna Paudyal, 2000, ‘The Components of BidAsk Spreads on the London Stock Exchange,’ Journal of Banking and Finance 24, 1767-1785 Ozenbas, Deniz, R A Schwartz and R A Wood, 2003 ‘Volatility in US and European Equity Markets: An Assessment of Market Quality’ International Finance, Volume 5, Number 3, pp 437-461 Pagano, Michael S., and Robert A Schwartz, 2003, ‘A Closing Call’s Impact on Market Quality at Euronext Paris.’ Journal of Financial Economics, Volume 68, pp 439-484 Paroush, J., Robert A Schwartz and Avner Wolf, ‘Trading, Price Setting and Volatility in Equity Markets Under Divergent Expectations and Adaptive Valuations,’ working paper, 2009 Roll, Richard, 1988, ‘R ‘, Journal of Finance 43, 541-566 Schwartz, Robert A and David K Whitcomb, 1977, ‘The Time Variance Relationship: Evidence on Autocorrelation in Common Stock Returns,’ Journal of Finance, pp 41 - 55 Stoll, Hans, 2000, ‘Friction,’ Journal of Finance 4, 1479-1515 Wood, Robert A., Thomas H McInish, and Keith Ord, 1985, An investigation of transactions data for NYSE stocks, Journal of Finance 40, 723-741 Appendix A Opening Half-Hour No of Trades = Average number of trades during the first half-hour of trading for each stock Opening Half-Hour Volume = Average trading volume during the first half-hour of trading for each stock 126 Volatility Monthly Variance = Standard deviation of close-to-close daily returns for each stock Total Volume = Average monthly share volume for each stock Average Price = Average trading price for each stock Mid Cap Dummy = Equals if the stock is a medium capitalization stock, it is zero otherwise Small Cap Dummy = Equals if the stock is a small capitalization stock, it is zero otherwise MidCap * Opening Total Volume = Interaction term between the mid cap dummy and the Opening Total Volume variable SmallCap * Opening Total Volume = Interaction term between the small cap dummy and the Opening Total Volume variable MidCap * Opening No Of Trades = Interaction term between the mid cap dummy and the Opening No Of Trades variable SmallCap * Opening No Of Trades = Interaction term between the small cap dummy and the Opening No Of Trades variable LSE Dummy = Variable is if the stock trades on the LSE, and it is zero otherwise Participant Biographies Robert Almgren, adjunct instructor at NYU since 2006, and co-founder in 2008 of Quantitative Brokers Until 2008, Dr Almgren was a Managing Director and Head of Quantitative Strategies in the Electronic Trading Services group of Banc of America Securities From 2000-2005, he was a tenured Associate Professor of Mathematics and Computer Science at the University of Toronto, and Director of its Master of Mathematical Finance program Before that, he was an Assistant Professor of Mathematics at the University of Chicago and Associate Director of the Program on Financial Mathematics Dr Almgren holds a B.S in Physics and Mathematics from the Massachusetts Institute of Technology, an M.S in Applied Mathematics from Harvard University and a Ph.D in Applied and Computational Mathematics from Princeton University He has an extensive research record in applied mathematics, including several papers on optimal securities trading, transaction cost measurement, and portfolio formation George H Bodine is currently Director of Trading for General Motors Investment Management Corporation (GMIMCo) He is responsible for worldwide equity and derivative trading relating to GMIMCo's internal investment funds Prior to assuming his current position in September, 1996, Mr Bodine was Vice President of Schwab Institutional overseeing equities and options trading for the small to mid-tier investment advisors Preceding that, he spent his career with Equitable/Alliance Capital starting in 1972 Mr Bodine received his BS in Psychology in 1972 from Syracuse University and MS in Business Management in 1979 from Central Michigan University Mr Bodine is currently a member of the Securities Trader Association and National Organization of Investment Professionals He is a former member of both the NYSE and AMEX Institutional Traders Advisory Committees He is on the R.A Schwartz et al (eds.), Volatility: Risk and Uncertainty in Financial Markets, Zicklin School of Business Financial Markets Series, DOI 10.1007/978-1-4419-1474-3, © Springer Science+Business Media, LLC 2011 127 128 Volatility Advisory Board of the Ballentine Investment Institute at the M J Whitman School of Management at Syracuse University Harold Bradley is chief investment officer for the Ewing Marion Kauffman Foundation, where he is responsible for directing all aspects of the Foundation’s investment initiatives Bradley leads a team that oversees a globally diversified $2.1 billion portfolio, characterized by individual securities, and a substantial allocation to alternative asset classes, including hedge funds, private equity, and commodities Prior to joining the Foundation, Bradley spent nineteen years with American Century Investments, where he most recently served as chief investment officer of U.S Growth Equity-Mid Cap/Small Cap/Sector He was active at the forefront of investor advocacy issues and investment public policies, such as decimalization, to reduce investor trading costs He was also instrumental in developing a number of the firm’s investment strategies Previously, Bradley was principal of HKE Investments, Inc and a member of the Kansas City Board of Trade, where he traded stock index, futures, and options He also served as marketing director for the exchange Bradley is a member of the Investment Company Institute Task Force on Market Structure Formerly, he was appointed to the Federal Advisory Committee on Market Data and served on the Institutional Traders Advisory Committee of the NYSE, the NASDAQ Quality of Markets Committee, and on the executive committee overseeing the development of the Financial Information Exchange (FIX) protocol He is the author of a series of public comment letters in response to SEC Concept Releases that made a significant impact on industry rule-making He has extensive public speaking and advocacy experience, and has testified before Congress and the Senate Bradley graduated Summa Cum Laude from Marquette University, and has completed the Kennedy School program on investment decisions and behavioral finance at Harvard University Erin Burnett anchors CNBC's ‘Street Signs’ (2-3 pm ET) and co-anchors CNBC's ‘Squawk on the Street,’ (9-10 am ET) with Mark Haines She also appears regularly on NBC's ‘Today’ and ‘Nightly News with Brian Williams’ and is a contributor on MSNBC's ‘Morning Joe’ She anchored CNBC's first live programs from the Middle East Burnett joined CNBC from Bloomberg Television where she anchored two hours of programming daily Prior to Bloomberg, Burnett was a Vice President at Citigroup, where she built an online financial news network targeted at institutional and retail investors Burnett also has worked at CNN as a writer and booker for CNN's ‘Moneyline.’ She began her career at Goldman, Sachs & Co as an investment banking analyst focused on mergers and acquisitions and corporate finance She was a member of the team awarded the 2006 Deadline Club Award for Business Reporting Burnett holds a Bachelor of Arts in Political Economy from Williams College in Williamstown, MA Participant Biographies 129 Ian Domowitz is a Managing Director at Investment Technology Group, Inc., responsible for ITG Solutions Network, Inc., and a member of the company’s Management and Executive Committees Prior to joining the company in 2001, he served as the Mary Jean and Frank P Smeal Professor of Finance at Pennsylvania State University and previously was the Household International Research Professor of Economics at Northwestern University A former member of the NASD’s Bond Market Transparency Committee, he also served as chair of the Economic Advisory Board of the NASD Mr Domowitz has held positions with Northwestern’s Kellogg Graduate School of Management, Columbia University, the Commodity Futures Trading Commission, the International Monetary Fund and the World Bank He is currently a Fellow of the Program in the Law and Economics of Capital Markets at Columbia University Brendan F Doran is Vice President, Business Development for Chi-X Europe Mr Doran is based in New York and responsible for sales and managing all aspects of the on-boarding process for US firms interested in accessing Chi-X Prior to joining Chi-X Mr Doran worked as an institutional sales-trader at both Instinet and Morgan Stanley and began his career on the floor of the NYSE Mr Doran is a graduate of Iona College Robert Engle, the Michael Armellino Professor of Finance at New York University Stern School of Business, was awarded the 2003 Nobel Prize in Economics for his research on the concept of autoregressive conditional heteroskedasticity (ARCH) He developed this method for statistical modeling of time-varying volatility and demonstrated that these techniques accurately capture the properties of many time series Professor Engle shared the prize with Clive W J Granger of the University of California at San Diego Professor Engle is an expert in time series analysis with a long-standing interest in the analysis of financial markets His ARCH model and its generalizations have become indispensable tools not only for researchers, but also for analysts of financial markets, who use them in asset pricing and in evaluating portfolio risk His research has also produced such innovative statistical methods as cointegration, common features, autoregressive conditional duration (ACD), CAViaR and now dynamic conditional correlation (DCC) models Before joining NYU Stern in 2000, Professor Engle was Chancellor's Associates Professor and Economics Department Chair at the University of California, San Diego, and Associate Professor of Economics at the Massachusetts Institute of Technology He received his bachelor of science in physics from Williams College and his master of science in physics and doctor of philosophy in economics from Cornell University Born in Syracuse, NY, he grew up in Media, Pennsylvania, spent 25 years in San Diego, and now lives in New York Reto Francioni (born in 1955) is CEO of Deutsche Börse AG From April 2002 to October 2005, Reto Francioni was chairman and president of the SWX Swiss Exchange in Zurich Prior to assuming this post, he was co-CEO 130 Volatility of Consors Discount-Broker AG, Nuremberg Earlier in his career, he was appointed in 1993 to the board of Deutsche Börse AG, where he was responsible for its entire cash market division and, in 1999, became deputy CEO He held different management positions in the securities exchange and banking sectors of Switzerland and the USA, as well as in the directorate of the corporate finance division of Hofmann LaRoche Reto Francioni studied law in Zurich, where he also earned his Ph.D in law He is a professor for applied capital markets theory at the University of Basel, and was an adjunct professor of economics and finance at the Zicklin School of Business, New York His publications include Equity Markets in Action and The Equity Trader Course Willian Geyer joined JonesTrading in April 2007 as President and COO In April 2008, Mr Geyer assumed the title of CEO in addition to that of President Mr Geyer's experience spans 15 years of global, electronic and hightouch sell-side and buy-side trading experience Prior to his appointment at JonesTrading, Mr Geyer managed a number of Citigroup's global execution businesses including algorithms, DMA, program trading, transition services, the EMS platform and connectivity Before joining Citigroup, Mr Geyer managed US equity trading for Barclays Global investors Mr Geyer has a BA from the University of Southern California and has his Series 7, 24, 55, and 63 industry licenses Robert Greifeld is Chief Executive Officer of The NASDAQ OMX Group, the world's largest exchange company Mr Greifeld has a 20-year history in technology and created one of the first electronic stock order matching systems Today he leads one of the most dynamic companies in the exchange and technology sector, which delivers trading, financial market technology and public company services across six continents With over 3,900 companies, NASDAQ OMX is number one in worldwide listings among major markets In 2007, Mr Greifeld led NASDAQ's combination with Stockholm-based OMX AB, as well as the acquisitions of the Philadelphia Stock Exchange and the Boston Stock Exchange Under Mr Greifeld's leadership, the growth of The Nasdaq Stock Market has been impressive, with 13 consecutive quarters of top line growth The year 2007 was NASDAQ's most successful since it began reporting financials in 1997 Greifeld has been a strong advocate of modernizing exchanges and financial regulation to improve U.S competitiveness and the performance of the markets to benefit investors Prior to joining NASDAQ OMX, Greifeld led the buy- and sell-side transaction routing businesses for SunGard Data Systems While serving as President and Chief Operating Officer of Automated Securities Clearance, Inc Greifeld led the team that created BRASS and made it the industry standard trade order management system for NASDAQ stocks Greifeld holds a Masters in Business from New York University, Stern School of Business and a B.A in English from Iona College His graduate school thesis was on the operation of The NASDAQ Stock Market Greifeld is Chairman of the USA Track & Field Participant Biographies 131 Foundation He is a member of the Business Roundtable, the Financial Services Roundtable and the Partnership for New York City, an organization devoted to enhancing the local economy Ken Hight serves as the head of global equities and the head of the company's Canadian operations He is responsible for expanding Liquidnet's industry-leading market share, introducing product innovations, and growing office staff and resources Ken comes to Liquidnet with 30 years experience in the financial services industry and brings a history of success in using his nuanced understanding of the needs of buy-side traders of Canadian equities to deliver exceptional value From 2005 until he joined Liquidnet in 2008, Ken served as Executive Vice President, Capital Markets, of E*Trade Financial Corporation where he was responsible for the management of the business's institutional equity business Prior to that, he spent five years as the first Chief Executive Officer and President of ITG Canada where he established the office and oversaw the implementation of a suite of competitive products and services Prior to ITG, he spent seven years with TD Securities where he served as Deputy Chair, responsible for Global Institutional Equities, and as a member of the Executive Committee Ken holds a B.A in Communication from Concordia University in Montreal Brian Hyndman is a Senior Vice President of NASDAQ’s Transaction Services In this capacity, Mr Hyndman is responsible for managing the dayto-day operations of the transaction services area As Senior Vice President of NASDAQ Transaction Services, he is also responsible for the broker/dealer sales Tim Mahoney, as CEO, is responsible for the strategic direction and growth of BIDS Trading, the alternative trading system (ATS) designed to increase competition and liquidity in the U.S equity block trading market Mahoney has over 30 years of experience in the financial industry and global equities market Prior to joining BIDS Trading, Mahoney served as Head of Equity Trading for Merrill Lynch Investment Managers for seven years where he was responsible for a 14-person, 24-hour trading desk that traded over $100 billion in equities Mahoney also worked in the firm’s Unit Investment Trust Department for 16 years, holding a number of positions, which included Head of Equity Trading and Chief Investment Officer During his tenure at Merrill Lynch, Mahoney helped create the popular ‘Dogs of the Dow’ series of investments Mahoney began his career at Merrill Lynch in 1979 as a summer intern on the floor of the American Stock Exchange Mahoney has served as a member of the New York Stock Exchange’s Institutional Advisory Committee and Market Performance Committee He also served on advisory committees for NASDAQ Stock Market, The Boston Stock Exchange and the Investment Company Institute Mahoney is a graduate of the College of the Holy Cross (BA) and New York University’s Stern School of Business (MBA) He is a CFA 132 Volatility Terrence F Martell is the Director of the Weissman Center for International Business at Baruch College/CUNY where he is also the Saxe Distinguished Professor of Finance As Director, he oversees a myriad of international programs and projects He is also Chair of the Baruch College Faculty Senate He received his BA in Economics from Iona College and his Ph.D in Finance from the Pennsylvania State University His particular area of expertise is international commodity markets He teaches and conducts research in this area Prior to joining Baruch College in 1988, Dr Martell was Senior Vice President of the Commodity Exchange in New York City He is a Director of the Intercontinental Exchange (ICE) which is listed on the NYSE He serves on the Audit Committee of ICE He serves on the board of the ICE Futures US where he is Vice Chairman He is a member of the Reuters/Jefferies CRB Index Oversight Committee He serves as a board member of the Manhattan Chamber of Commerce and is a member of its executive committee He is a trustee of the PSC/CUNY Welfare Fund which manages health benefits for the employees of City University of New York A resident of Pelham, New York, he served as President of the Pelham School Board and the United Way of Pelham Albert Menkveld is Associate Professor of Finance at VU University Amsterdam In 2002, he received a Tinbergen PhD from Erasmus University Rotterdam He spent 18 months of his PhD as visiting scholar at Wharton and Stanford on a Fulbright scholarship He visited NYU-Stern in 2004-2005 and he will be there again in 2008-2009 Albert Menkveld has published in various journals, e.g Journal of Finance, Journal of Business & Economic Statistics, and Journal of Financial Markets In 2007 he received the Pierson medal (‘Dutch Bates Clark’) by the Royal Dutch Economic Association, in 2004 he received a VENI grant from the Netherlands Organization for Scientific Research (NWO) to fund his three-year research agenda, in 2003 he was awarded a Lamfalussy scholarship by the European Central Bank, and in 2001 the Josseph de la Vega Prize by the Federation of European Exchanges In 2004 he became a member of the academic council of the Autorité des Marchés Financiers (‘French SEC’) Matthew T Moran is Vice President, Business Development, for the Chicago Board Options Exchange (CBOE He had a leadership role in developing and marketing the CBOE S&P 500 BuyWrite Index (BXM) and the CBOE S&P 500 PutWrite Index (PUT), both of which received the annual Most Innovative Benchmark Index award Mr Moran also has served as Trust Counsel at Harris Bank and as Vice President at Chicago Mercantile Exchange He is an Associate Editor of The Journal of Trading and is on the advisory boards of the Chartered Alternative Investments Analyst Association (CAIA) and The Journal of Indexes He is a licensed attorney-at-law who has received M.B.A and Juris Doctor degrees from the University of Illinois Participant Biographies 133 Richard Rosenblatt is the CEO and founder of Rosenblatt Securities Dick is widely regarded as one of the foremost authorities on equity market structure and has served as an official of the NYSE in various capacities for nearly 20 years Currently one of only six Executive Governors of the NYSE who advise top management on market structure developments and new products as well as oversee all major issues on the floor (from disputes to halts to technology malfunctions), he also serves on a number of NYSE committees, including the Market Performance Committee, Allocation Committee, the NYSE Hearing Board, Hybrid Point of Sale Committee, Agency Hybrid Development Committee, and the Handheld Design Committee Dick is also the Founder of the NYSE Floor Members Emergency Fund and the Founder and First President of the Organization of Independent Floor Brokers In addition to his professional associations, Mr Rosenblatt is very involved in a number of charities, including positions as Founder and Chairman of the Floor Members Outreach Program, Founder and Director of the NYSE Fallen Heroes Fund, and Trustee Emeritus of Mercy College Jim Ross is vice president of NYSE MatchPoint and oversees the development and operations of the equity crossing facility for NYSE Euronext Prior to joining NYSE in July of 2006, Mr Ross was CEO of MatchPoint Trading, a firm dedicated to the business of electronic call market trading From 1989-2003, he spearheaded Instinet's Global Crossing business During that period, Mr Ross built daily U.S crossing volume to 17 million shares a day, established Instinet’s international crossing business, launched JapanCross—the first Japanese equity crossing service (with Nikko Salomon Smith Barney), as well as multi-currency, UK, VWAP and FX crosses Keith Ross brings thirty years of experience in the securities industry to PDQ Mr Ross's experiences have included floor trading, off floor trading, risk arbitrage, options, futures and cash markets He has managed several different sized firms ranging from 15-75 employees, the most recent being focused on electronic trading Mr Ross began his career as an options analyst in 1976 In 1979, Mr Ross became a member of the American Stock Exchange and a registered options trader on the floor of the exchange In 1983, Mr Ross formed Ceres Partners which was a small trading firm specializing in risk arbitrage and options market making In 1988, Mr Ross became a member of the CBOE and was a market maker until 1999 Mr Ross has spent the last several years focused on electronic trading Mr Ross joined PDQ Enterprises, LLC in 2005 and serves as CEO Mr Ross is a graduate of Princeton University and resides in Chicago Asani Sarkar is a Research Officer at the Federal Reserve Bank of New York Previously, he has been a Visiting Assistant Professor of Finance at Columbia University and an Assistant Professor of Finance at the University of Illinois, Urbana Champaign Dr Sarkar has published numerous articles on the microstructure of equity, fixed income, and futures markets His papers have 134 Volatility appeared in, among others, the Journal of Finance, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, the Journal of Business, the Journal of Empirical Finance, and the Journal of Financial Intermediation Dr Sarkar received his Ph.D from the University of Pennsylvania Robert A Schwartz is the Marvin M Speiser Professor of Finance and University Distinguished Professor in the Zicklin School of Business, Baruch College, CUNY Before joining the Baruch faculty in 1997, he was Professor of Finance and Economics and Yamaichi Faculty Fellow at New York University's Leonard N Stern School of Business, where he had been a member of the faculty since 1965 In 1966, Professor Schwartz received his Ph.D in Economics from Columbia University His research is in the area of financial economics, with a primary focus on the structure of securities markets He has published over sixty refereed journal articles, twelve edited books, and eight authored books, including Micro Markets: A Market Structure Approach to Microeconomic Analysis, Wiley & Sons, 2010, forthcoming, Mastering the Art of Equity Trading Through Simulation: The TraderEx Course (co-authored with Gregory Sipress and Bruce Weber) Wiley & Sons, 2010 forthcoming, The Equity Trader Course (co-authored with Reto Francioni and Bruce Weber) Wiley & Sons, 2006, and Equity Markets in Action: The Fundamentals of Liquidity, Market Structure and Trading (co-authored with Reto Francioni) Wiley & Sons, 2004 He has served as a consultant to various market centers including the New York Stock Exchange, the American Stock Exchange, NASDAQ, the London Stock Exchange, Instinet, the Arizona Stock Exchange, Deutsche Börse, and the Bolsa Mexicana From April 1983 to April 1988, he was an associate editor of The Journal of Finance, and he is currently an associate editor of the Review of Quantitative Finance and Accounting and the Review of Pacific Basin Financial Markets and Policies, and is a member of the advisory boards of International Finance and The Journal of Trading In December 1995, Professor Schwartz was named the first chairman of NASDAQ's Economic Advisory Board, and he served on the EAB until Spring 1999 He is developer, with Bruce Weber and Greg Sipress, of the trading and market structure simulation, TraderEx (http://www.etraderex.com/) In 2009, Schwartz was named the first recipient of the World Federation of Exchanges’ annual Award for Excellence Robert Shapiro is Executive Director of trading and execution analysis at Morgan Stanley Investment Management (MSIM) Shapiro reports directly to Ray Tierney, Global Head of equity trading Rob works closely with Tierney on matters that help optimize MSIM's global trading infrastructure, such as trade analytics, technology, execution strategy, relationship development and transaction measurement Shapiro's mandate is to develop MSIM's global trading best practices and procedures, an integral component of Tierney's strategic initiative to revamp MSIM's global trading platform Shapiro joined Participant Biographies 135 MSIM from Abel Noser, where he served as SVP of advanced trading strategies Prior to that, Rob was head trader at Iridian Asset Management from 1999-2004 Larry Tabb is the founder and CEO of TABB Group, the financial markets’ research and strategic advisory firm focused exclusively on capital markets Founded in 2003 and based on the interview-based research methodology of ‘first-person knowledge’ he developed, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager, broker, exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues Larry has published industry research analyzing ECNs; fixed income, equity and foreign exchange trading systems; back-office trade processing systems; broker workstations; analytical trading tools; infrastructure development tools; and foreign and emerging market technologies He has written extensively on the changing market structure, exchanges and regulatory issues and business continuity as well as new technology trends in cost management, risk management, order management, best execution, algorithmic trading, dark pools, multi- and crossasset trading, liquidity management, FIX, STP, connectivity, custody and advances in emerging technologies Before founding TABB Group, he was vice president of TowerGroup’s Securities & Investments practice where he managed research across the capital markets, investment management, retail brokerage and wealth management segments As the founding member of TowerGroup’s securities and investments business, he was instrumental in growing the business into a global brand representing over 150 research clients around the world Quoted extensively and in virtually all industry and general news publications, he has been cited in The Wall Street Journal, Financial Times, Associated Press, The New York Times, CNN, Bloomberg, CNBC, Reuters, Dow Jones News, Barron’s, Forbes, Business Week, Financial News, Wall Street & Technology, Securities Industry News, Waters, Global Investment Technology, Computerworld, eWEEK, American Banker, The Banker, Lipper HedgeWorld, Hedge Fund Review and Wall Street Letter He continues to be a featured speaker at major industry and business conferences throughout the US, Europe, Asia and Canada He currently writes monthly columns discussing business and technology issues germane to the global securities industry as a contributing editor for Wall Street & Technology and Advanced Trading magazines From 1997 to 2001, he was the author of benchmark industry technology surveys co-sponsored by TowerGroup and the Securities Industry Association (published biennially): Technology Trends in the Securities Industry: Investing in Tomorrow's Infrastructure, 2001 and Technology Trends in the Securities Industry: Transition to an Online World, 1999; and co-authored the 1997 Technology Trends in the Securities Industry: Spending, Strategies, Challenges & Change – all in-depth analyses of technology trends and spending within the securities industry that were widely 136 Volatility distributed and quoted Prior to joining TowerGroup, he managed business analysis for Lehman Brothers’ Trading Services Division and was responsible for overseeing the specification, testing and implementation of dozens of major systems during his tenure He was also in charge of capital markets technology planning at Lehman Brothers where he developed one- and three-year technology plans from 1988 through 1992 He began his career managing various operations for the North American Investment Bank of Citibank, where he managed front office trading and finance operations, various back-office money market operations and, for US Treasury debt, proprietary trading clearance and settlement operations D Grant Vingoe is a partner in Arnold & Porter LLP’s New York office He is a director of the Investment Industry Regulatory Organization of Canada – Canada’s primary securities industry SRO and is Chair of IIROC’s Corporate Governance Committee Mr Vingoe has served as the U.S legal representative on the Ontario Securities Commission’s Securities Advisory Committee He graduated from the University of Toronto with a B.A in 1979, Osgoode Hall Law School with an LL.B in 1981 and from New York University with an LL.M in 1984 Henri Waelbroeck has over 20 years experience finding solutions to complex problems He earned his PhD at the University of Texas at Austin in 1990 He worked at the Institute of Nuclear Sciences for 10 years, where he earned a tenured position as Associate Research Professor and published over 40 articles in peer-reviewed journals in Theoretical Physics and Complex Systems Science In 1997 he co-founded Adaptive Technologies, Inc which created and sold the world’s first agent-based quantitative analysis system able to identify and exploit predictability bubbles Henri joined Pipeline shortly after its launch in 1999 where he helped create systems that enable traders to confront the challenges of an increasingly complex marketplace He is currently focused on Pipeline’s Algorithm Switching Engine, designed to provide optimal integration of block trading with access to dark liquidity interceptor pools and retail-sized markets to reduce information costs in executing large trades Joseph Wald, Managing Director at Direct Trading Institutional, L.P., a subsidiary of Knight Capital Group, is a recognized leader in developing electronic direct market access and algorithmic trade technologies Prior to joining Knight, Mr Wald was co-founder and Chief Executive Officer at EdgeTrade Inc., a leading agency-only trade execution and algorithmic software firm Knight completed the acquisition of EdgeTrade on January 15, 2008 Before co-founding EdgeTrade in 1996, Joseph held several positions at Datek Securities Joseph received his B.S in business management and finance from Brooklyn College Liuren Wu Education: PhD, Institute of Chemistry, Chinese Academy of Sciences, 1994; Master of Philosophy, Stern School of Business New York Participant Biographies 137 University, 1998; MS, Beijing Institute of Technology, Chemical Engineering, 1991; BS, Beijing Institute of Technology, Chemical Engineering, 1988 Areas of Expertise: Term structure modeling; option pricing; microstructure; international finance Selected Publications: Peter Carr, and Liuren Wu, Stochastic Skew in Currency Options, Journal of Financial Economics, 2007, 86(1), 213—247; Liuren Wu, Dampened Power Law: Reconciling the Tail Behavior of Financial Security Returns, Journal of Business, 2006, 79(3), 1445—1474; ‘Specification Analysis of Option Pricing Models Based on Time-Changed Lvy Processes,’ (with Jingzhi Huang), Journal of Finance, 2004, 59(3), 1405-1439; ‘Time-Changed Lvy Processes and Option Pricing,’ (with Peter Carr), Journal of Financial Economics, 2004, 27(1), 113-141; ‘What Type of Process Underlies Options? A Simple Robust Test,’ (with Peter Carr), Journal of Finance, 2003, 58(6), 2581-2610; ‘Finite Moment Log Stable Process and Option Pricing,’ (with Peter Carr), Journal of Finance, 2003, 58(2), 753-777; ‘Asset Pricing Under the Quadratic Class,’ (with Markus Leippold), Journal of Financial and Quantitative Analysis, 2002, 37(2), 271-295; ‘Predictable Changes in Yields and Forward rates,’ (with David Backus, Silverio Foresi, and Abon Mozumdar), Journal of Financial Economics, 2001, 59(3), 281-311 ... business cycles that we observe That is, the duration of the NBER-dated R.A Schwartz et al (eds. ), Volatility: Risk and Uncertainty in Financial Markets, Zicklin School of Business Financial Markets. .. Robert A Schwartz • John Aidan Byrne Antoinette Colaninno Editors Volatility Risk and Uncertainty in Financial Markets Editors Robert A Schwartz Department of Finance Zicklin School of Business... following are part of our everyday financial parlance: Risk aversion, risk hedging, risk management, value at risk, risk measurement and risk premium In our industry, we have highpowered minds,