trading volume and information revelation in stock markets i consider a market microstructure model in which the rates of public and private informa tion arrival are probabilistic the latter depends on the availability of private information that is stochastically changing over time in equilibrium traders estimate the availability of private information using past periods trading volume and use this information to adjust their strategies the time series properties include contemporaneous correlation between price variability and volume and autocorrelation in price variability similar to garch the model explains why trading volume contains useful information for predicting volatil ity and provides predictions on the limit and market order placement strategies of traders

volume liquidity and liquidity risk abstract many classes of microstructure models as well as intuition suggest that it should be easier to trade when markets are more active in the data however volume and liquidity seem unrelated over time this paper offers an explanation for this fact based on a simple frictionless model in which liquidity reflects the average risk bearing capacity of the economy and volume reflects the changing contribution of individuals to that average volume and liquidity are unrelated in the model but volume is positively related to the variance of liquidity or liquidity risk empirical evidence from the u s government bond and stock markets supports this new prediction

trader see trader do how do small fx traders react to large counterparties trades abstract we show that information about the counterparty of a trade affects the future trading decisions of individual traders the effect is such that traders tend to reverse their order flow in line with the better informed counterparties informed traders primarily incorporate their own private as well as publicly available information into prices whereas uninformed traders mainly magnify the effect of the informed this pattern of interaction among traders extends to different order types traders treat their own and others market orders as more informative than limit orders

modelling the relationship between future energy intraday volatility and trading volume with wavelet abstractalthough the energy and stock markets are both characterized by volatility and liquidity and there has been substantial research to explore the relationship between volatility and trading volume tv in stock markets few researchers have investigated this relationship in energy markets moreover studies that have explored this association within energy markets did not describe its nature or impetus to redress this oversight we investigate this relationship using intraday data from the oil and gas markets the most liquid energy markets in the world in this way the current article extends the previous studies through the use of a frequency approach to propose an original analysis of the relationship between volume and volatility more specifically we employ a continuous wavelet transform to identify the lead lag phase between volatility and volume this framework supplants usual time series modelling as it uses a measure of coherence for different frequencies and time scales to capture fu

liquidity and autocorrelations in individual stock returns this paper documents a strong relationship between short run reversals and stock illiquidity even after controlling for trading volume the largest reversals and the potential contrarian trading strategy profits occur in high turnover low liquidity stocks as the price pressures caused by non informational demands for immediacy are accommodated however the contrarian trading strategy profits are smaller than the likely transactions costs this lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short term reversals is not so egregious after all asset prices should follow a martingale process over short horizons as systematic short run changes in fundamental values should be negligible in an efficient market with unpredictable information arrival however lehmann 1990 and jegadeesh 1990 show that contrarian strategies that exploit the short run return reversals in individual stocks generate abnormal returns of about 1 7 per week and 2 5 per month respectively subsequently ball kothari and wasley 1995 and conrad gultekin and kaul 1997 suggest that much of such reversal profitability is within the bid ask bounce theoretically the potential role of liquidity in explaining the high abnormal payoffs to short run contrarian strategies is implied by the rational equilibrium framework of campbell grossman and wang 1993 henceforth cgw in the cgw model non informational trading causes price movements that when absorbed by liquidity suppliers cause prices to revert such non informed trading is accompanied by high trading volume whereas informed trading is accompanied by little trading volume thus price changes accompanied by high low trading volume should should not revert empirically conrad hameed and niden 1994 henceforth chn find that reversal profitability increases with trading

price discovery in the u s treasury market the impact of orderflow and liquidity on the yield curve we examine the role of price discovery in the u s treasury market through the empirical relationship between orderflow liquidity and the yield curve we find that orderflow imbalances excess buying or selling pressure can account for as much as 26 percent of the day to day variation in yields on days without major macroeconomic announcements the effect of orderflow on yields is permanent and strongest when liquidity is low all of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve

trade credit and cross country predictable firm returns we investigate the role of trade credit links in generating cross border return predictability between international firms using data from 42 countries from 1993 to 2009 we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable by the returns of their associated customer countries this behavior is especially prevalent for firms with high levels of foreign sales and is robust to a variety of controls to better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links the model has further predictions about this phenomenon including stronger predictability during periods of high credit constraints and high uninformed trading volume we find supportive empirical evidence for these results

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

a theory of the dynamics of security returns around market closures numerous empirical studies document patterns in the means and variances of security returns measured over periods that are punctuated by market closures this article develops a multiperiod model in which closures delay the resolution of uncertainty thereby redistributing risk across time and agents since agents are risk averse in the model this redistribution affects the equilibrium price altering risk premia liquidity costs and the degree of informational asymmetry as a consequence closures alter both the means and variances of returns the article demonstrates that closures can generate a variety of mean and variance effects including those that mirror the empirical phenomena numerous empirical studies of security returns have documented patterns in both the mean and the variance of returns interestingly most of these patterns are punctuated by periods in which the market is regularly closed for example the variance of returns from the market close to the market opening is much less than the variance from open to close similarly mean returns over weekends are abnormally low in fact significantly negative relative to daily mean returns during the trading week within a trading day return variances are u shaped with peaks occurring immediately after the market opens and just before it closes 2 further french and roll 1986 examine the variance of tuesday close to thursday close returns during a period in which the market was closed on wednesdays and show that this variance is only slightly greater than half the tuesday close to thursday close variance when the market was open on wednesdays 3 one explanation for the differences in the overnight and trading day variances is that market hours mostly coincide with business hours when

liquidity risk return predictability and hedge funds performance an empirical study this article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios similarly to avramov kosowski naik and teo 2007 2011 we observe that before accounting for the effect of liquidity risk hedge fund portfolios that incor porate predictability in managerial skills generate superior performance this outperfor mance disappears or weakens substantially for most emerging markets event driven and long short hedge fund portfolios once we account for liquidity risk moreover we show that the equity market neutral and long short hedge fund portfolios alphas also entail rents for their service as liquidity providers these results hold under various robustness tests

dynamic liquidity in endowment economies abstract this paper analyzes endogenous variations in aggregate liquidity that arise in standard representative agent endowment economies i introduce a natural definition of liquidity essentially a shadow elasticity that characterizes the price impact function or bid ask spread that a small trader would experience i compute this quantity for some tractable examples and uncover a rich variety of predictions that in some cases appear consistent with levels and covariations observed in the data the results have important implications for the pricing and hedging of liquidity risk

an empirical evaluation of the overconfidence hypothesis abstract recently several behavioral finance models based on the overconfidence hypothesis have been proposed to explain anomalous findings including a short term continuation momentum and a long term reversal in stock returns we characterize the overconfidence hypothesis by the following four testable implications first if investors are overconfident they overreact to private information and underreact to public information second market gains make overconfident investors trade more aggressively in subsequent periods third excessive trading of overconfident investors in securities markets contributes to the observed excessive volatility fourth overconfident investors underestimate risk and trade more in riskier securities to document the presence of overconfidence in financial markets we empirically evaluate these four hypotheses using aggregate data overall we find empirical evidence in support of the four hypotheses

integrated data driven analytics to identify instability signatures in nonstationary financial time series abstractwith the objective of identifying instability signatures of the financial system this article integrates two classes of data driven techniques the first class of techniques is utilized to investigate macroeconomic behaviour by aggregating an ensemble of heterogeneous nonstationary time series data and the second class of techniques examines the local dynamics of the microstructures in each time series moving window principal component analysis pca and functional pca fpca are shown to extract collective signatures of the financial system for understanding macroeconomic behaviour and the synchrosqueezing and markov switching techniques are used to study local dynamics within each individual time series the integrated data analytics successfully identifies the diverse events from 1986 to 2012 all events both major and minor have been identified by fpca the major economic events especially the 2008 great recession along with several minor events showed a strong leading indicator in the

trading volume and autocorrelation empirical evidence from the stockholm stock exchange abstract in accordance with studies for other markets swedish index returns exhibit high autocorrelation a after days of above average performance of the stock market b after low absolute returns c when trading volume is low and d following fridays contrary to the non synchronous trading and the transaction cost hypotheses all results extend to individual stock returns it is concluded that autocorrelation patterns are related to the trading patterns of individual investors and not the cross security information processing of the market in particular the observed autocorrelation structure corresponds to feedback trading

liquidity and contagion the crisis of 1763 the financial crisis that swept across northern europe in 1763 bears a strong resemblance to more recent episodes of financial distress the combination of the specific contractual arrangements at the time interlocking credit relationships and the high leverage of market participants triggered distress sales of assets leading into a severe liquidity crisis hence the crisis is an early instance of contagion on the asset side of the balance sheet we highlight the salient features of the 1763 crisis and propose a stylized model of the events whilst the financial institutions have changed fundamentally in the intervening two hundred or so years the underlying problems appear to be universal

causality in quantiles and dynamic stock return volume relations abstract this paper investigates the causal relations between stock return and volume based on quantile regressions we first define granger non causality in all quantiles and propose testing non causality by a sup wald test such a test is consistent against any deviation from non causality in distribution as opposed to the existing tests that check only non causality in certain moment this test is readily extended to test non causality in different quantile ranges in the empirical studies of three major stock market indices we find that the causal effects of volume on return are usually heterogeneous across quantiles and those of return on volume are more stable in particular the quantile causal effects of volume on return exhibit a spectrum of symmetric v shape relations so that the dispersion of return distribution increases with lagged volume this is an alternative evidence that volume has a positive effect on return volatility moreover the inclusion of the squares of lagged returns in the model may weaken the quantile causal effects of volume on return but does not affect the causality per se

information trading volume and international stock return comovements evidence from cross listed stocks we investigate the joint dynamics of returns and trading volume of 556 foreign stocks cross listed on u s markets heterogeneous agent trading models rationalize how trading volume reflects the quality of traders information signals and how it helps to disentangle whether returns are associated with portfolio rebalancing trades or information motivated trades based on these models we hypothesize that returns in the home u s market on high volume days are more likely to continue to spill over into the u s home market for those cross listed stocks subject to the risk of greater informed trading our empirical evidence provides support for these predictions which confirms the link between information trading volume and international stock return comovements that has eluded previous empirical investigations

regression discontinuity and the price effects of stock market indexing the russell 1000 and 2000 stock indexes comprise the first 1000 and next 2000 largest firms ranked by market capitalization small changes in the capitalizations of firms ranked near 1000 move them between these indexes because the indexes are value weighted more money tracks the largest stocks in the russell 2000 than the smallest in the russell 1000 using this discontinuity we find that additions to the russell 2000 result in price increases and deletions result in price declines we then identify time trends in indexing effects and the types of funds that provide liquidity to indexers

asset prices and consumption in a model of perpetual youth i construct a general equilibrium overlapping generations model with heterogeneous agents and obtain analytical solutions to asset prices consumption and asset demands individuals have constant absolute risk aversion and a constant probability of dying agents have three stages in their lives in the first stage agents are young and constrained from investing in stocks in the second stage they work and in the third they retire i analyze asset prices numerically and with comparative statics changing any exogenous parameter has large effects on asset prices when there are large demographic changes to the population constrained from investing in stocks

an equity assessment of introducing uncertain forest carbon sequestration in eu climate policy large emissions of greenhouse gases are expected to cause major environmental problems in the future european policy makers have therefore declared that they aim to implement cost efficient and fair policies to reduce carbon emissions the purpose of this paper is to assess whether the cost of the eu policies for 2020 can be reduced through the inclusion of carbon sequestration as an abatement option while equity is also improved the assessment is done by numerical calculations using a chance constrained partial equilibrium model of the eu emissions trading scheme and national effort sharing targets where forest sequestration is introduced as an uncertain abatement option fairness is evaluated by calculation of gini coefficients for six equity criteria to policy outcomes the estimated gini coefficients range between 0 11 and 0 32 for the current policy between 0 16 and 0 66 if sequestration is included and treated as certain and between 0 19 and 0 38 when uncertainty about sequestration is taken into account and policy makers wish to meet targets with at least 90 per cent probability the results show that fairness is reduced when sequestration is included and that the impact is larger when sequestration is treated as certain

liquidity credit quality and the relation between volatility and trading activity evidence from the corporate bond market this paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from october 2004 to june 2012 we find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size consistent with the prediction of the search based theory the relations are much stronger for illiquid and risky bonds furthermore both liquidity and credit risk become more important in times of stress and their effects are reinforcing results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

the cross over effect of irrational sentiments in housing commercial property and stock markets abstract this paper examines the dependence in irrational sentiments across housing commercial property and stock markets our empirical results document an important and lasting impact that commercial real estate sentiment and returns have on broader financial markets we also show that the cross over effects of market sentiments are not consistent with cross over effects in market returns sentiments and returns in housing and stock markets exhibit strong dependence on other markets whereas they evolve independently in commercial real estate while housing and stock market returns respond to irrational sentiment in commercial real estate markets the opposite is not true

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

the creditor channel of liquidity crises this paper presents a model to study the transmission of liquidity shocks across financial institutions through the creditor channel in the model a borrower institution obtains funds from a large institutional lender and small investors when the large lender s asset market is hit by a liquidity shock it might decide to withdraw funding extended to the borrower the potential withdrawal by the large lender causes small investors to panic and to close positions even if the large lender does not facing funding problems the borrower has to cut its activities contributing to further shocks to the supply of market liquidity the original shock is exacerbated which reinforces withdrawals by all creditors the model helps explain how the spreading of liquidity shocks from the broker dealer sector to the hedge fund sector and the feedback contribute to a systemic crisis

liquidity provision and stock return predictability this paper examines the trading behavior of two groups of liquidity providers specialists and competing market makers using a six year panel of nyse data trades of each group are negatively correlated with contemporaneous price changes to test for return predictability we sort stocks into quintiles based on each group s past trades and then form long short portfolios stocks most heavily bought have significantly higher returns than stocks most heavily sold over the two weeks following a sort cross sectional analysis shows smaller more volatile less actively traded and less liquid stocks more often appear in the extreme quintiles time series analysis shows the long short portfolio returns are positively correlated with a market wide measure of liquidity a double sort using past trades of specialists and competing market makers produces a long short portfolio that earns 88 basis points per week act as complements finally we identify a chain of liquidity provision designated market makers nyse specialists initially trade against order flows and prices changes specialists later mean revert their inventories by trading with competing market makers who appear to spread trades over a number of days alternatively specialists may trade with competing market makers who arrive to market with delay

the impact of short selling on the price volume relationship evidence from hong kong this paper considers the relationship between traded volume and volatility allowing for the impact of short sales the evidence supports a nonlinear bidirectional relationship between volume and volatility short selling is found to have a significant impact on this relationship and our results suggest i that the hong kong market displays greater volatility following a period of short selling and ii that asymmetric responses to positive and negative innovations to returns appear to be exacerbated by short selling

international equity flows and returns a quantitative equilibrium approach this paper models trading by foreign and domestic investors in developed country equity markets the key assumptions are that i both the foreign and domestic investor populations contain investors of different sophistication and ii investor sophistication matters for performance in both public equity and private off market investments a quantitative model with these assumptions delivers a unified explanation for three stylized facts about us investors international equity trades that have been documented in the literature i trading by us investors occurs in bursts of simultaneous buying and selling ii americans build and unwind foreign equity positions gradually and iii us investors increase their market share in a country when stock prices there have recently been rising

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the impact of trades on daily volatility this article proposes a trading based explanation for the asymmetric effect in daily volatility of individual stock returns previous studies propose two major hypotheses for this phenomenon leverage effect and time varying expected returns however leverage has no impact on asymmetric volatility at the daily frequency and moreover we observe asymmetric volatility for stocks with no leverage also expected returns may vary with the business cycle that is at a lower than daily frequency trading activity of contrarian and herding investors has a robust effect on the relationship between daily volatility and lagged return consistent with the predictions of the rational expectation models the non informational liquidity driven herding trades increase volatility following stock price declines and the informed contrarian trades reduce volatility following stock price increases the results are robust to different measures of volatility and trading activity jel c30 g11 g12 stock return volatility is fundamental to finance contingent claims pricing risk management asset allocation and market efficiency tests use volatility as a basic building block consequently volatility has been widely studied along several dimensions volatility clustering in financial data has been well documented and extensively modeled by the autoregressive conditional heteroskedasticity arch of engle 1982 and the generalized arch extension of bollerslev 1986 1 shiller 1981 leroy and porter 1981 roll 1984 1988 french and roll 1986 and cutler poterba and summers 1989 have all documented a significant amount of volatility that cannot be explained by changes in fundamentals and thus may be attributable to mispricing schwert 1989 has studied the variation in stock market volatility over time and has analyzed the

asymmetric herding as a source of asymmetric return volatility abstract as a considerable source of asymmetry in return volatility this paper introduces asymmetric herding and extends the continuous beliefs system to account for its asymmetry and derive the asymmetric herding parameters that are easily estimated by using a maximum likelihood method based on the garch type econometric model this paper presents new empirical evidence for asymmetry in the exchange rates volatility of major currencies against the us dollar which have bilateral nature interestingly the asymmetry of japanese yen is the opposite of that of others and the global financial crisis highlights the opposite asymmetry some of traditional hypotheses such as the leverage effect and the volatility feedback effect do not adequately explain these findings however a significant asymmetric herding effect is observed and appears to be time varying further the clear link between asymmetric herding and volatility strongly supports the hypothesis of the asymmetric herding effect

forecasting the forecasts of others implications for asset pricing we develop a dynamic asset pricing model with heterogeneously informed agents unlike previous research we focus on the general case where differential information leads to the problem of forecasting the forecasts of others and to non trivial dynamics of higher order expectations in particular we prove that the model does not admit a finite number of state variables using numerical analysis we compare equilibria characterized by identical fundamentals but different information structure we demonstrate that the distribution of information has substantial impact on equilibrium prices and returns in particular we show that asymmetric information can generate momentum in returns and high trading volume

daily momentum and contrarian behavior of index fund investors we use a two year panel of individual accounts in an s p 500 index mutual fund to examine the trading and investment behavior of more than 91 000 investors who have chosen a low cost passively managed vehicle for savings we identify classes of momentum investors and contrarian investors we use these classes to build up behavioral factors based on contrarian and momentum flows and we show that they are relevant for pricing they perform well against a benchmark of loadings on latent factors extracted from returns

forecast improvements using a volatility index this paper explores the possibility of improved out of sample forecasting for stock returns and foreign exchange rates using observed nonlinearities in the two series forecasting is done using nonparametric techniques where important information is obtained from the current level of volatility in the series for both series forecast improvements are observed but for stock returns the improvements are only marginal these results indicate the usefulness and stability of some types of nonlinear modelling for financial markets

testing for linear and nonlinear granger causality in the stock price volume relation linear and nonlinear granger causality tests are used to examine the dynamic relation between daily dow jones stock returns and percentage changes in new york stock exchange trading volume we find evidence of significant bidirectional nonlinear causality between returns and volume we also examine whether the nonlinear causality from volume to returns can be explained by volume serving as a proxy for information flow in the stochastic process generating stock return variance as suggested by clark s 1973 latent common factor model after controlling for volatility persistence in returns we continue to find evidence of nonlinear causality from volume to returns

indexing and stock market serial dependence around the world abstract we show a striking change in index return serial dependence across 20 major market indexes covering 15 countries in north america europe and asia while many studies find serial dependence to be positive until the 1990s it switches to negative since the 2000s this change happens in most stock markets around the world and is both statistically significant and economically meaningful further tests reveal that the decline in serial dependence links to the increasing popularity of index products e g futures exchange traded funds and index mutual funds the link between serial dependence and indexing is not driven by a time trend holds up in the cross section of stock indexes is confirmed by tests exploiting nikkei 225 index weights and standard poor s 500 membership and in part reflects the arbitrage mechanism between index products and the underlying stocks

intermediary asset pricing abstract we model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary intermediaries face an equity capital constraint risk premia r

equilibrium analysis of portfolio insurance a martingale approach is used to characterize general equilibrium in the presence of portfolio insurance insurers sell to noninsurers in bad states and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings we show that portfolio insurance increases price volatility causes mean reversion in asset returns raises the sharpe ratio and volatility in bad states and causes volatility to be correlated with volume we also explain why out of the money sp that is the demand for an absolute level of price protection is equivalent to a demand for put options 1 we show that a similar argument can be used in a

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

return predictability following large price changes and information releases abstract we examine return behavior following large price change events unconditional post event abnormal returns are found to be unimportant as we condition on other criteria related to the quality of information like volume and public announcements the abnormal returns become large the type of news provides further refinement if the news relates to earnings or analyst recommendations then the 20 day abnormal returns become much larger ranging from 3 to 4 for positive events and about 2 25 for negative events finally an out of sample trading strategy confirms investor under reaction and generates significant abnormal annualized returns of the order of 12 18

infrequent rebalancing return autocorrelation and seasonality a model of infrequent rebalancing can explain specific predictability patterns in the time series and cross section of stock returns first infrequent rebalancing produces return autocorrelations that are consistent with empirical evidence from intraday returns and new evidence from daily returns autocorrelations can switch sign and become positive at the rebalancing horizon second the cross sectional variance in expected returns is larger when more traders rebalance this effect generates seasonality in the cross section of stock returns which can help explain available empirical evidence

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the dynamic relationship between stock returns and trading volume domestic and cross country evidence abstract this paper examines the dynamic relations causal relations and the sign and magnitude of dynamic effects between stock market trading volume and returns and volatility for both domestic and cross country markets by using the daily data of the three largest stock markets new york tokyo and london major findings are as follows first trading volume does not granger cause stock market returns on each of three stock markets second there exists a positive feedback relationship between trading volume and return volatility in all three markets third regarding the cross country relationships us financial market variables in particular us trading volume contains an extensive predictive power for uk and japanese financial market variables fourth sub sample analyses show evidence of stronger spillover effects after the 1987 market crash and an increased importance of trading volume as an information variable after the introduction of options in the us and japan

cephalon inc taking risk management theory seriously cephalon inc a biotech firm bought call options on its own stock to meet its conditional cash flow needs we analyze this decision by using the cash flow hedging concepts of froot et al 1993 journal of finance 5 1629 1658 we identify the managerial analyses necessary to apply this theory and discuss managerial considerations absent from the theory we find that managers consider deadweight costs of risk management which theory tends to ignore theory provides little guidance in how to measure these and other deadweight costs finally uncertainty about the availability of external financing and accounting considerations are critical considerations by managers

trading activity dealer concentration and foreign exchange market quality abstract we study the relation between foreign exchange market quality and both trading activity and dealer concentration by considering two currency pairs with significant differences along both dimensions the euro us dollar and canadian dollar us dollar a variance ratio test reveals over reaction in currency prices but that this is smallest when trading activity is high and dealer concentration at its peak a garch model shows that over reaction declines as trading activity and dealer concentration increase with the results being stronger for the euro our results confirm that trading activity is an important determinant of market quality but also point to a significant role for dealer concentration

volume autocorrelation information and investor trading this study investigates whether the widely documented daily correlated trading volume of stocks is driven by individual investor trading institutional trading or both we find that at least 95 of nyse and amex stocks exhibit statistically significant positive serial correlation volume autocorrelation decreases with the level of institutional ownership of a stock we also show that the rate of arrivals of new information to the market contributes to the clustering of trades when there is high information flow to the market institutional trading generates a more pronounced effect on volume autocorrelation than individual investor trading our results are broadly consistent with the predictions of trading volume patterns suggested by most theoretical models of stock trading and by empirical research on investor trading

firms as buyers of last resort abstract we develop a model to explore the asset pricing implications of firms being buyers of last resort for their own stocks those with more ability to repurchase shares when prices drop far below fundamental value i e less financially constrained firms should have lower short horizon return variances controlling for fundamental variance than other firms using standard proxies for financing constraints such as past repurchases and firm age we find strong support for this predicted relation we also find that this relation is stronger in the u s after 1982 when regulatory reforms lowered the legal cost of conducting repurchases as well as in countries where share repurchases are legally easier to execute

why do short sellers like qualitative news short sellers trade more on days with qualitative news that is news containing fewer numbers we show that this behavior is not informationally motivated but can be explained by short sellers exploiting higher liquidity on such days we document that liquidity and noise trading increase in the presence of qualitative news enabling short sellers to better disguise their informed trades natural experiments support our findings qualitative news has a bigger effect on short sellers trading after a decrease in liquidity following the stock s deletion from the standard poor s 500 index and a smaller effect when investor attention is distracted by the olympic games

revisiting the empirical linkages between stock returns and trading volume abstract this paper investigates whether the empirical linkages between stock returns and trading volume differ over the fluctuations of stock markets i e whether the return volume relation is asymmetric in bull and bear stock markets using monthly data for the s p 500 price index and trading volume from 1973m2 to 2008m10 strong evidence of asymmetry in contemporaneous correlation is found as for a dynamic causal relation it is found that the stock return is capable of predicting trading volume in both bear and bull markets however the evidence for trade volume predicting returns is weaker

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

on the strategic behavior of large investors a mean variance portfolio approach abstract one key assumption of markowitz s model is that all traders act as price takers in this paper we extend this mean variance approach in a setting where large investors can move prices instead of having an individual optimization problem we find the investors nash equilibrium and redefine the efficient frontier in this new framework we also develop a simplified application of the general model with two assets and two investors to shed light on the potential strategic behavior of large and atomic investors our findings validate the claim that large investors enhance their portfolio performance in relation to perfect market conditions besides we show under which conditions atomic investors can benefit in relation to the standard setting even if they have not total influence on their eventual performance the two investors two assets setting allows us to quantify performance and do sensitivity analysis regarding investors market power risk tolerance and price elasticity of demand finally for a group of well known etfs we empirically show how price variations change depending on the volume traded we also explain how to set up and use our model with real market data

intertemporal risk return tradeoff in the short run abstract we hypothesize that good bad market news causes overpricing underpricing in the short term thereby inducing a weak or negative significantly positive intertemporal risk return tradeoff we verify this asymmetry through the indirect relation of a weak or positive association between excess market returns and contemporaneous volatility innovations conditional on good news and a significantly negative relation conditional on bad news we also show that the inclusion of a price adjustment term is critical for reliable estimation of the intertemporal risk return relation

a microsimulation of traders activity in the stock market the role of heterogeneity agents interactions and trade frictions we propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns in the model synchronization effects which generate large fluctuations in returns can arise purely from communication and imitation among traders the key element in the model is the introduction of a trade friction which by responding to price movements creates a feedback mechanism on future trading and generates volatility clustering the model also reproduces the empirically observed positive cross correlation between volatility and trading volume

journalists and the stock market we use exogenous scheduling of wall street journal columnists to identify a causal relation between financial reporting and stock market performance to measure the media s unconditional effect we add columnist fixed effects to a daily regression of excess dow jones industrial average returns relative to standard control variables these fixed effects increase the r super 2 by about 35 indicating each columnist s average persistent bullishness or bearishness to measure the media s conditional effect we interact columnist fixed effects with lagged returns this increases explanatory power by yet another one third and identifies amplification or attenuation of prevailing sentiment as a tool used by financial journalists the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

trading volume and serial correlation in stock returns this paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns for both stock indexes and individual large stocks the first order daily return autocorrelation tends to decline with volume the paper explains this phenomenon using a model in which risk averse market makers accommodate buying or selling pressure from liquidity or noninformational traders changing expected stock returns reward market makers for playing this role the model implies that a stock price decline on a high volume day is more likely than a stock price decline on a low volume day to be associated with an increase in the expected stock return