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Asymmetric information and the distribution of trading volume

Author

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  • Lof, Matthijs
  • Bommel, Jos van

Abstract

We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we find that firm-year observations of VCV, computed from daily trading volumes, are correlated with extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements.

Suggested Citation

  • Lof, Matthijs & Bommel, Jos van, 2018. "Asymmetric information and the distribution of trading volume," Bank of Finland Research Discussion Papers 1/2018, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp001
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    Cited by:

    1. is not listed on IDEAS
    2. Gao, Xin & Xu, Weidong & Li, Donghui, 2025. "Media coverage and managerial investment learning from stock markets: International evidence," Research in International Business and Finance, Elsevier, vol. 76(C).
    3. Xu, Minggang & Zhang, Xueyong & Zhang, Yeqing, 2024. "Margin trading, short selling, and information asymmetry," Journal of Financial Markets, Elsevier, vol. 70(C).
    4. James, Hui Liang & Jiraporn, Pornsit & Wang, Hongxia, 2025. "CEO tenure and labor investment efficiency," Journal of Contemporary Accounting and Economics, Elsevier, vol. 21(2).
    5. Huang, Chia-I & Tsai, Wei-Che & Feng, Zhi-Yuan & Yang, Sharon.S., 2025. "Carbon emissions and litigation risk," Finance Research Letters, Elsevier, vol. 80(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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

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