Abstract

http://ssrn.com/abstract=1754215
 
 

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The Dark Side of Trading


Ilia D. Dichev


Emory University - Goizueta Business School

Kelly Huang


Florida International University

Dexin Zhou


Emory University - Department of Finance

January 4, 2011

Emory Law and Economics Research Paper No. 11-95
AFA 2012 Chicago Meetings Paper
Emory Public Law Research Paper No. 11-143

Abstract:     
This study investigates the effect of high trading volume on observed stock volatility. The motivation is that volumes of U.S. trading have increased more than 30-fold over the last 50 years, truly transforming the marketplace. Given existing work that links volume and volatility as simultaneously driven by fundamental information, we are specifically interested in the effect of increased trading controlling for such information. We investigate a number of settings, including a mix of natural experiments (exchange switches, S&P 500 changes, dual-class shares), the aggregate time-series of U.S. stocks since 1926, and the cross-section of U.S. stocks during the last 20 years. Our main finding is that, controlling for other factors, there is a reliable and economically substantial positive relation between volume of trading and stock volatility. The conclusion is that stock trading produces its own volatility above and beyond that based on fundamentals.

Number of Pages in PDF File: 54

Keywords: Trading, Volume, Volatility

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Date posted: February 4, 2011  

Suggested Citation

Dichev, Ilia D. and Huang, Kelly and Zhou, Dexin, The Dark Side of Trading (January 4, 2011). Emory Law and Economics Research Paper No. 11-95; AFA 2012 Chicago Meetings Paper; Emory Public Law Research Paper No. 11-143. Available at SSRN: http://ssrn.com/abstract=1754215 or http://dx.doi.org/10.2139/ssrn.1754215

Contact Information

Ilia D. Dichev (Contact Author)
Emory University - Goizueta Business School ( email )
1300 Clifton Road
Atlanta, GA 30322-2722
United States
Kelly Huang
Florida International University ( email )
11200 SW 8th Street
Miami, FL 33199
United States
Dexin Zhou
Emory University - Department of Finance ( email )
1300 Clifton Road
Atlanta, GA 30322-2710
United States
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