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The Information Content in Trades of Inactive Nasdaq Stocks

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  • Peter Chen

    (Youngstown State University)

  • Kasing Man

    (Syracuse University)

  • Chunchi Wu

    (Syracuse University)

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    Abstract

    In this paper we analyze the frequency and information content of small Nasdaq stock trades and their impacts on return volatility at the intraday interval. We employ an autoregressive conditional duration (ACD) model to estimate the intensity of the arrival and information content of trades by accounting for the deterministic nature of intraday periodicity and irregular trading intervals in transaction data. We estimate and compare the price duration of thinly and heavily traded stocks to assess the differential information content of stock trades. We find that the number of transactions is negatively correlated with price duration or positively correlated with return volatility. The impact of the number of transactions on price duration or volatility is higher for thinly traded stocks. On the other hand, the persistence of the impact on price duration adjusted for intradaily periodicity is about the same for thinly and heavily traded stocks on average.

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    Bibliographic Info

    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 8 (2003)
    Issue (Month): 2 (Summer)
    Pages: 25-53

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    Handle: RePEc:pep:journl:v:8:y:2003:i:2:p:25-53

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    Related research

    Keywords: Information Content; Trading; Inactive Stocks; NASDAQ;

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    References

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    1. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-64.
    2. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, American Finance Association, vol. 47(2), pages 576-605, June.
    3. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
    4. Alfonso Dufour & Robert F. Engle, 2000. "Time and the Price Impact of a Trade," Journal of Finance, American Finance Association, American Finance Association, vol. 55(6), pages 2467-2498, December.
    5. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, Elsevier, vol. 4(2-3), pages 187-212, June.
    6. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 179-207, March.
    7. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1992. "Stock Prices and Volume," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 5(2), pages 199-242.
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    10. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, Econometric Society, vol. 66(5), pages 1127-1162, September.
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    12. Wu, Chunchi & Xu, Xiaoqing Eleanor, 2000. " Return Volatility, Trading Imbalance and the Information Content of Volume," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 14(2), pages 131-53, March.
    13. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
    14. Admati, Anat R & Pfleiderer, Paul, 1989. "Divide and Conquer: A Theory of Intraday and Day-of-the-Week Mean Effects," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 2(2), pages 189-223.
    15. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    16. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, American Finance Association, vol. 50(4), pages 1175-99, September.
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