A Model of Price, Volume and Sequential Information

International Journal of Business and Economics, Vol. 6, 2007

30 Pages Posted: 1 Nov 2009

See all articles by Gaiyan Zhang

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Date Written: December 1, 2006

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 (ECNs), 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.

Keywords: Price, Volume, Sequential Information, Trading Strategy, Event Study

JEL Classification: G12, G14, C60

Suggested Citation

Zhang, Gaiyan, A Model of Price, Volume and Sequential Information (December 1, 2006). International Journal of Business and Economics, Vol. 6, 2007, Available at SSRN: https://ssrn.com/abstract=1497542

Gaiyan Zhang (Contact Author)

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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