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Liquidity, Information, and Infrequently Traded Stocks

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Author Info
 Easley, David, et al

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Abstract

This article investigates whether differences in information-based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information-based trading for a sample of New York Stock Exchange (NYSE) listed stocks. The authors use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume-decile stocks. Their most important empirical result is that the probability of information-based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information-based trading on spreads. Coauthors are Nicholas M. Kiefer, Maureen O'Hara, and Joseph B. Paperman. Copyright 1996 by American Finance Association.

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File URL: http://links.jstor.org/sici?sici=0022-1082%28199609%2951%3A4%3C1405%3ALIAITS%3E2.0.CO%3B2-%23&origin=repec
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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 51 (1996)
Issue (Month): 4 (September)
Pages: 1405-36
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Handle: RePEc:bla:jfinan:v:51:y:1996:i:4:p:1405-36

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  1. Nikolaus Hautsch, 2007. "Capturing Common Components in High-Frequency Financial Time Series: A Multivariate Stochastic Multiplicative Error Model," CFS Working Paper Series 2007/25, Center for Financial Studies. [Downloadable!]
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  2. Randi Næs, 2004. "Ownership Structure and Stock Market Liquidity," Working Paper 2004/6, Norges Bank. [Downloadable!]
  3. Andreas Park, 2008. "Bid-Ask Spreads and Volume:The Role of Trade Timing," Working Papers tecipa-309, University of Toronto, Department of Economics. [Downloadable!]
  4. Joachim Grammig & Erik Theissen, 2003. "Estimating the Probability of Informed Trading - Does Trade Misclassification Matter?," University of St. Gallen Department of Economics working paper series 2003 2003-01, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  5. Rodrigo Aranda & Patricio Jaramillo, 2008. "Nonlinear Dynamic in the Chilean Stock Market: Evidence from Returns and Trading Volume," Working Papers Central Bank of Chile 463, Central Bank of Chile. [Downloadable!]
  6. Simon Gervais & Ron Kaniel & Dan Mingelgrin, . "The High Volume Return Premium," Rodney L. White Center for Financial Research Working Papers 01-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
  7. Valeri Voev, 2006. "A Trade-by-Trade Surprise Measure and Its Relation to Observed Spreadson the NYSE," CoFE Discussion Paper 06-03, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
  8. Nikolaus Hautsch, 2002. "Modelling Intraday Trading Activity Using Box-Cox-ACD Models," CoFE Discussion Paper 02-05, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
  9. David Kelly & Douglas Steigerwald, 2004. "Private Information and High-Frequency Stochastic Volatility," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 8(1), pages 1167-1167. [Downloadable!] (restricted)
  10. Nikolaus Hautsch, 2005. "The latent factor VAR model: Testing for a common component in the intraday trading process," FRU Working Papers 2005/03, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
  11. Louis R. Mercorelli & David Michayluk & Anthony D. Hall, 2008. "Modelling Adverse Selection on Electronic Order-Driven Markets," Research Paper Series 220, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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