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Intraday Volume — Volatility Relation of the DOW: A Behavioral Interpretation

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Ali F. Darrat

    (Louisiana Tech University, USA)

  • Shafiqur Rahman

    (Portland State University, USA)

  • Maosen Zhong

    (The University of Queensland, Australia)

Abstract

In a recent article, Darrat et al. (2003) report results for the DJIA in which higher volume causes higher volatility without significant feedback. These empirical results have interesting behavioral interpretations. It is argued that the observed positive causality from volume to volatility supports overconfidence hypothesis over other alternatives, including Andreassen's (1990) salience hypothesis. The evidence suggests that investors suffer from a psychological error (overconfidence), inciting them to trade too aggressively and drive prices away from their fundamental values.

Suggested Citation

  • Ali F. Darrat & Shafiqur Rahman & Maosen Zhong, 2008. "Intraday Volume — Volatility Relation of the DOW: A Behavioral Interpretation," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 6, pages 117-125, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812791696_0006
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    More about this item

    Keywords

    Hedging Strategies; Expense Mismatching; Stock Split; Trading Volume; Portfolio Optimization; Intraday Patterns; Earnings Management; International Winner-Loser Effect;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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