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Trading Activity, Quoted Liquidity, and Stock Volatility

Author

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  • Li Jiang

    (Hong Kong Baptist University, Hong Kong)

  • Lawrence Kryzanowski

    (Concordia University, Canada)

Abstract

In this article, we examine dynamic relationships between volatility and various microstructure measures of trade activity and quoted liquidity for each component stock in the Toronto Stock Exchange 35 Index and for the Toronto 35 Index Participation Shares. When volatility is conditioned on number of trades and quoted liquidity, trading volume provides no incremental explanatory power. Thus, the number of trades appears to be a better proxy for Information flow. Furthermore, investigation into partitioned volume suggests that the number of trades is more effective than the unexpected volume in explaining volatility. Measures of quoted liquidity also play a significant role in explaining intra day volatility. Bid-ask spreads and quote depth are positively and negatively related to volatility, respectively. Consistent with the lack of information signal, no trade outcomes are negatively related to volatility.

Suggested Citation

  • Li Jiang & Lawrence Kryzanowski, 1997. "Trading Activity, Quoted Liquidity, and Stock Volatility," Multinational Finance Journal, Multinational Finance Journal, vol. 1(3), pages 199-227, September.
    • Handle: RePEc:mfj:journl:v:1:y:1997:i:3:p:199-227
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    References listed on IDEAS

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    2. Kryzanowski, Lawrence & Lazrak, Skander, 2009. "Liquidity minimization and cross-listing choice: Evidence based on Canadian shares cross-listed on U.S. venues," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 550-564, July.
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    More about this item

    Keywords

    volatility; volatility determinants; and market microstructure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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