A new interpretation of known facts: The case of two-way causality between trading and volatility
AbstractEfficient price setting implies that news create volatility since traders flock to the market in order to re-optimise their portfolios. In due course of the price finding process volatility should decline once the asset price approaches its new, efficient level. In this note I present evidence that the reverse mechanism plays as well. Traders genuinely increase volatility challenging the presumption that more traders help to identify the efficient price more quickly.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Rational expectations; Uncertainty; Causality; Very high frequency data;
Find related papers by JEL classification:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- F3 - International Economics - - International Finance
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
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