Re: Divide by 2. Here is an article that says it better than i could
in response to
by
posted on
Feb 13, 2008 10:31AM
probably because they actually read their posts and correct stuff before they publish
On NASDAQ vs, NYSE Volume.
It has long been known that the reported volumes on the NASDAQ are overstated. This is due to double counting and inter-dealer dealings. As the describe it:
"The discrepancy between trading volumes reported in the two primary U.S. stock markets arises because Nasdaq is primarily a dealer market, whereas the NYSE is largely an auction market. In a dealer market...A dealer is therefore on one side of every transaction, which results in trading volume being overstated. When an investor sells 100 shares of firm X to a dealer, the dealer reports a 100-share transaction; when another investor buys the 100 shares of firm X rom the dealer, he reports another 100-share transaction. Only 100 shares of firm X have changed hands between the two investors, but trading volume of 200 shares has been reported."
The same 100 share trade on the NYSE would be reported as a 100 shares.
Moreover, "Trading volume can be further overstated due to inter-dealer trading." This occurs when a dealer trades with another dealer with no corresponding trade with investors. A common reason for this type of trade would be dealer inventory adjustments. Since NYSE specialists are involved in a smaller portion of trades (roughly 25% accoridng to Madhavan and Sofianos-1998) than NASDAQ dealers, this too adds to higher reported NASDAQ volume.
Thus, to compare volumes across markets, various algorithms have been used. The easiest is to merely divide NASDAQ volume by two. This idea received support by a 1997 paper by Atkins and Dyl that found when a firm moved from the NASDAQ to the NYSE, reported volume went down by approximately 50%.
However, that was then and this is now. For several important reasons, this overstating may no longer exist. For instance:
In light of these changes Anderson and Dyl set out to see if reporting biases had changed. They examine the trading of 299 firms that changed from the NASDAQ to the NYSE in the 1997 to 2002 time period. They find that median volume does drop by about 37% which is less than the 50% number found by Atkins and Dyl (1997).
Thus, the authors conclude that NASDAQ volume numbers are still biased in comparison to NYSE reported volumes, but not by as much as they had been.