Trading Activity and Realized Volatility: Evidence with Decomposed Trading Volume and Order Imbalance

37 Pages Posted: 25 Aug 2010 Last revised: 24 Nov 2010

See all articles by Sze Shih Ting

Sze Shih Ting

Monash University

Don U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Date Written: August 23, 2010

Abstract

This study investigates the relation between decomposed trading volume (number of trades and average trade size) and realized volatility and its continuous and jump components. Considering buyer-initiated and seller-initiated trades and investigate whether buyer and seller initiated trades as two factors of realized volatility, we investigate whether they have an asymmetric effect on realized volatility. The stocks in the ASX50 sampled over the period January 1996 to April 2010 reveal that realized volatility and its continuous component in the returns has a positive association with trading volume, number of trades and average trade size. The association between the jump component of realized volatility and trading volume and the number of trades is negative. The buyer and seller initiated trades do not appear to explain realized volatility well. These results are robust to the GMM estimation and in sub-period analysis.

Keywords: Trading activity, realized volatility, order imbalance

JEL Classification: G10, G12, G13

Suggested Citation

Ting, Sze Shih and Galagedera, Don (Tissa) U. A. and Treepongkaruna, Sirimon and Brooks, Robert Darren, Trading Activity and Realized Volatility: Evidence with Decomposed Trading Volume and Order Imbalance (August 23, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1663530 or http://dx.doi.org/10.2139/ssrn.1663530

Sze Shih Ting (Contact Author)

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Don (Tissa) U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics ( email )

900 Dandenong Road
Caulfield East, VIC 3145
Australia
+61 3 9903 1578 (Phone)
+61 3 9903 2007 (Fax)

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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