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A Model of Competitive Stock Trading Volume

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  • Wang, Jiang

Abstract

A model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives. The author examines the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics. It is found that volume is positively correlated with absolute changes in prices and dividends. The author shows that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-168, February.
  • Handle: RePEc:ucp:jpolec:v:102:y:1994:i:1:p:127-68
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    References listed on IDEAS

    as
    1. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 905-939.
    2. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. 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.
    5. Blake LeBaron, "undated". "Persistence of the Dow Jones Index on Rising Volume," Working papers _006, University of Wisconsin - Madison.
    6. Mankiw, N. Gregory, 1986. "The equity premium and the concentration of aggregate shocks," Journal of Financial Economics, Elsevier, vol. 17(1), pages 211-219, September.
    7. N/A, 1986. "Reading Lists in Public Finance," The American Economist, Sage Publications, vol. 30(2), pages 69-93, October.
    8. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    9. repec:bla:joares:v:10:y:1972:i:1:p:113-128 is not listed on IDEAS
    10. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    11. Detemple, Jerome B, 1986. " Asset Pricing in a Production Economy with Incomplete Information," Journal of Finance, American Finance Association, vol. 41(2), pages 383-391, June.
    12. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," The Journal of Business, University of Chicago Press, vol. 55(2), pages 253-267, April.
    13. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-1168, September.
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