4 ms·

>Yes. Absolutely. There is no causal relationship between nominal price and volatility. There are correlations between price and volatility, but it's that chea

by Kranar 5y ago

>Yes. Absolutely. There is no causal relationship between nominal price and volatility. There are correlations between price and volatility, but it's that cheap stocks (such as those below 5 dollars) are usually much more volatile than expensive ones. The same goes for liquidity, there is also no causal relationship between nominal price and liquidity. You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A which trades at ~300,000 dollars with BRK-B which trades at ~200 dollars: https://finance.yahoo.com/chart/BRK-B#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- https://finance.yahoo.com/chart/BRK-B#eyJpbnRlcnZhbCI6IndlZW... As a quant it would be nice of this property didn't hold, would be an easy arbitrage... but alas no such arbitrage opportunity is readily available.

vineyardmike 5y ago
> You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A with BRK-B: I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. I think a better test would be to compare a single ticker before and after a split.
- a-dub 5y ago
  > I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. agree. what couples their prices is actually a bit of a mystery to me though, conversions from class a to class b are non-taxable so that keeps class b from mispricing above class a, but i think if you want to go from b to a you have to sell and then buy on the open market which then means that the misprice would have to be greater than any cap gains plus trading costs for an amount equal to one share of class a, which seems like, a lot. skimming the internet sure makes it sound like splits are associated with increased volatility and reverse splits are associated with decreased volatility, which seems to check out a bit with respect to the idea of increased or decreased minimum bets on the options markets.
  - anamax 5y ago
    > misprice would have to be greater than any cap gains plus trading costs Tax is a percentage of the profit or loss. At the time-scale you're talking, it would be ordinary income rates. If the difference between what you pay and what you get is $100 (after expenses), you pay taxes on $100, no matter how much you paid. Yup, even if you paid $10M and received $10M+$100.

by Kranar 5y ago

vineyardmike 5y ago

> You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A with BRK-B: I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. I think a better test would be to compare a single ticker before and after a split.

a-dub 5y ago
> I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. agree. what couples their prices is actually a bit of a mystery to me though, conversions from class a to class b are non-taxable so that keeps class b from mispricing above class a, but i think if you want to go from b to a you have to sell and then buy on the open market which then means that the misprice would have to be greater than any cap gains plus trading costs for an amount equal to one share of class a, which seems like, a lot. skimming the internet sure makes it sound like splits are associated with increased volatility and reverse splits are associated with decreased volatility, which seems to check out a bit with respect to the idea of increased or decreased minimum bets on the options markets.
- anamax 5y ago
  > misprice would have to be greater than any cap gains plus trading costs Tax is a percentage of the profit or loss. At the time-scale you're talking, it would be ordinary income rates. If the difference between what you pay and what you get is $100 (after expenses), you pay taxes on $100, no matter how much you paid. Yup, even if you paid $10M and received $10M+$100.