Trade Size, Order Imbalance, and the Volatility-Volume Relation
39 Pages Posted: 26 Jul 1999
Date Written: June 1999
Abstract
This paper examines the roles of the number of trades, trade size, and order imbalance (buyer- versus seller- initiated trades) in explaining the volatility-volume relation for a sample of NYSE and NASDAQ stocks. Contrary to some previous studies, our results reconfirm the significance of trade size, beyond that of the number of trades, in the volatility-volume relation in both markets. After controlling for the return impact of order imbalance, the volatility-volume relation becomes much weaker. This suggests that one major driving force for the volatility-volume relation stems from order imbalance. Furthermore, on the NYSE, the return impact of order imbalance increases monotonically with the trade size of order imbalance, whereas on NASDAQ, there is no such monotonic relation and the largest return impact comes from the order imbalance in maximum-sized Small Order Execution System (SOES) trades.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Time-Varying Conditional Covariances in Tests of Asset Pricing Models
-
By David M. Cutler, James M. Poterba, ...
-
Asymmetric Volatility and Risk in Equity Markets
By Geert Bekaert and Guojun Wu
-
Why Do Security Prices Change? A Transaction-Level Analysis of Nyse Stocks
By Ananth Madhavan and Mark Roomans
-
By Martin Eichenbaum, Lars Peter Hansen, ...
-
Heteroskedasticity in Stock Returns
By G. William Schwert and Paul J. Seguin
-
Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data