Volatility changes caused by the trading system: a Markov switching application

Patricia L. Chelley-Steeley, Yan Li

Research output: Contribution to journalArticlepeer-review


An expanding literature exists to suggest that the trading mechanism can influence the volatility of security returns. This study adds to this literature by examining the impact that the introduction of SETS, on the London Stock Exchange, had on the volatility of security returns. Using a Markov switching regime change model security volatility is categorized as being in a regime of either high or low volatility. It is shown that prior to the introduction of SETS securities tended to be in a low volatility regime. At the time SETS was introduced securities moved to a high volatility regime. This suggests that volatility increased when SETS was introduced.
Original languageEnglish
Pages (from-to)373-380
Number of pages8
JournalApplied Financial Economic Letters
Issue number6
Publication statusPublished - 2005


  • trading mechanism
  • volatility
  • security returns
  • SETS
  • London Stock Exchange


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