A Model of Price, Volume, and Sequential Information
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.
Volume (Year): 6 (2007)
Issue (Month): 3 (December)
|Contact details of provider:|| Postal: 100 Wenhwa Road, Seatwen, Taichung|
Web page: http://www.ijbe.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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 305-21, March.
- Andrew W. Lo & Jiang W. Wang, 2000.
"Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory,"
NBER Working Papers
7625, National Bureau of Economic Research, Inc.
- Lo, Andrew W & Wang, Jiang, 2000. "Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 257-300.
- 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, 04.
- Morgan, I G, 1976. "Stock Prices and Heteroscedasticity," The Journal of Business, University of Chicago Press, vol. 49(4), pages 496-508, October.
- 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.
- 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.
- 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.
- 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.
- Andrew W. Lo & Jiang Wang, 2001. "Trading Volume: Implications of An Intertemporal Capital Asset Pricing Model," NBER Working Papers 8565, National Bureau of Economic Research, Inc.
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)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.