SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Appendix 1: Calculation of Volatility Metric
This Appendix presents the calculation of the volatility metric that isolates the
contribution of each half-hour period to total volatility, while controlling for total
volatility. In particular, for each half-hour period each day, we computed the normalized
contribution to variance by calculating the squared return, dividing it by the sum of
squared returns for that day, and multiplying by 13:
C
R
2
i
i = 13×
13
2
∑ R j
j−1
where Ri represents the market return in period i, and the sum of squared returns is taken
across the 13 half-hour periods between 9:30 and 4:00. The ratio is multiplied by 13 so
that the contribution is normalized to one. So, for example, on a day when realized
volatility is constant and the squared return is exactly the same in each half-hour period,
each period would contribute exactly 1/13 to the total sum of squares, and the normalized
contribution would be constant at one. After computing the normalized contribution each
half hour of each day, these contributions are aggregated by computing the mean
contribution for a given half-hour interval across days.
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SEC_OEA_FCIC_001815