IDEAS home Printed from https://ideas.repec.org/a/ijb/journl/v6y2007i3p207-223.html
   My bibliography  Save this article

A Model of Price, Volume, and Sequential Information

Author

Listed:
  • Gaiyan Zhang

    (College of Business Administration, University of MissouriĀ”XSt. Louis, U.S.A.)

Abstract

This paper models the relationship between price and volume by tracking their adjustment path and speed in a world with heterogeneous investors. Motivated by widely observed information leakage in the stock market and fast-growing electronic communication networks, the model features sequential information and direct order matching. I show that both the content and the dissemination speed of information are incorporated in price changes and volume accumulations simultaneously. A convergence trading strategy is proposed based on a joint statistic of price and volume, which should help to improve the timing of market entry and exit. The model offers an explanation for the mixed evidence on the relationship between price change and volume and provides several testable hypotheses.

Suggested Citation

  • Gaiyan Zhang, 2007. "A Model of Price, Volume, and Sequential Information," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 6(3), pages 207-223, December.
  • Handle: RePEc:ijb:journl:v:6:y:2007:i:3:p:207-223
    as

    Download full text from publisher

    File URL: http://www.ijbe.org/table%20of%20content/pdf/vol6-3/vol.6-3-03.pdf
    Download Restriction: no

    File URL: http://www.ijbe.org/table%20of%20content/abstract/Vol.6/No.3/03.htm
    Download Restriction: no

    References listed on IDEAS

    as
    1. Andrew W. Lo & Jiang Wang, 2006. "Trading Volume: Implications of an Intertemporal Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 61(6), pages 2805-2840, December.
    2. Morgan, I G, 1976. "Stock Prices and Heteroscedasticity," The Journal of Business, University of Chicago Press, vol. 49(4), pages 496-508, October.
    3. Tarun Chordia & Bhaskaran Swaminathan, 2000. "Trading Volume and Cross-Autocorrelations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(2), pages 913-935, April.
    4. Lo, Andrew W & Wang, Jiang, 2000. "Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory," Review of Financial Studies, Society for Financial Studies, pages 257-300.
    5. Epps, Thomas W & Epps, Mary Lee, 1976. "The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis," Econometrica, Econometric Society, vol. 44(2), pages 305-321, March.
    6. Morse, Dale, 1980. "Asymmetrical Information in Securities Markets and Trading Volume," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(05), pages 1129-1148, December.
    7. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
    8. Richardson, Gordon & Sefcik, Stephan E. & Thompson, Rex, 1986. "A test of dividend irrelevance using volume reactions to a change in dividend policy," Journal of Financial Economics, Elsevier, vol. 17(2), pages 313-333, December.
    9. Lo, Andrew W & Wang, Jiang, 2000. "Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory," Review of Financial Studies, Society for Financial Studies, pages 257-300.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tseng, Tseng-Chan & Lee, Chien-Chiang & Chen, Mei-Ping, 2015. "Volatility forecast of country ETF: The sequential information arrival hypothesis," Economic Modelling, Elsevier, vol. 47(C), pages 228-234.

    More about this item

    Keywords

    price; volume; sequential information; convergence trading strategy; event study;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijb:journl:v:6:y:2007:i:3:p:207-223. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yi-Ju Su). General contact details of provider: http://edirc.repec.org/data/cbfcutw.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.