Marketwide Private Information and Market Volatility-Volume Relation

35 Pages Posted: 25 May 2007

See all articles by Laura Xiaolei Liu

Laura Xiaolei Liu

Guanghua School of Management, Peking University

Date Written: May 2007

Abstract

This study investigates the different roles played by two components of trading volume, informed-trading and liquidity-trading, in the volatility-volume relation at the aggregate level. Using transaction data and an extended trading model of Easley, Kiefer, O'Hara and Paperman (1996), I estimate a marketwide private information arrival rate (PIAR) variable and use it to control for the informed trading component in trading volume. Contrary to the belief that aggregate trading volume mainly represents liquidity trading, the results show that the marketwide-private-information-trading component in aggregate trading volume is the underlying driving force for the positive volatility-volume relation.

Keywords: Private information, Volatility, Trading volume

JEL Classification: D82, G14

Suggested Citation

Liu, Laura Xiaolei, Marketwide Private Information and Market Volatility-Volume Relation (May 2007). Available at SSRN: https://ssrn.com/abstract=988348 or http://dx.doi.org/10.2139/ssrn.988348

Laura Xiaolei Liu (Contact Author)

Guanghua School of Management, Peking University ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://www.pku.edu.lauraliu.cn/en-home.html

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