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I was examining what had happened Tuesday to see what useful information
could be obtained. I did a study of the relationship of volatility and
volume. I used the NYA index because it reports volume. I used the high
low statistical volatility for the volatility measure. I took the 20 day
average of both the total NYA volume and the high low statistical
volatility measure. Based on my results, I believe that with a continued
increase in daily volume on the exchanges, that there will be a
subsequent increase in volatility. With the increased volatility you will
see 500 and 600 point swings on the INDU and NASDAQ more frequently. The
exchanges are doing everything then can to increase volume, so make sure
you keep a good supply of aspirin. I think what happened Tuesday was due
partly to the huge increase in volume we have been seeing. The greater
the volume, the greater the volatility, the greater the intraday swings.
We have seen this already in the Internet stocks exhibiting the same
behavior.
Ron McEwan
high low statistical volatility formula:
=(0.627*SQRT(365.25)*LN(High/Low))
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