Intertrade Duration and Information-Based Trading on an Electronic Order-Driven Market
35 Pages Posted: 30 Apr 2003 Last revised: 28 Apr 2016
Date Written: June 1, 2004
Abstract
Microstructure theories offered conflicting predictions regarding the relationship between trading intensity and information-based trading. In this paper, I make use of transaction-level data from the Chinese stock market to test the conflicting theories. I develop a high-frequency measure to capture the trading activities of informed traders. I show that trading based on good news is associated with increased trading intensity (or a shorter intertrade duration), whereas that based on bad news is associated with a longer duration. I also find that long durations are associated with declining prices and low volatility in the subsequent period. On balance, the findings are consistent with Diamond and Verrecchia (1987), where short sale constraints reduce the adjustment speed of stock prices to bad news.
Keywords: ACD model, UHF-GARCH model, microstructure, trading intensity, information-based trading, volatility, asymmetric effect, Shanghai Stock Exchange (SSE)
JEL Classification: G10, G15, C10, C41
Suggested Citation: Suggested Citation
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