Investor Sentiment - Relationship between VIX and Trading Volume

23 Pages Posted: 29 Aug 2012

See all articles by Violet U. T. Lei

Violet U. T. Lei

affiliation not provided to SSRN

Simon M. S. So

University of Macau

Maggie Zou

affiliation not provided to SSRN

Date Written: August 1, 2012

Abstract

As noise traders affect stock market by trading, sentiment, as a signal of noise, may have relationships with trading volume. This paper explores the effect of sentiment on the stock market’s trading volume. Increase in Volatility Index (VIX) can explain the percentage increase in trading volume, but only in high VIX period. Besides, higher level of VIX is likely to be associated with greater variability of trading volume. The noise traders add liquidity to the market and provide more chances for investors to time their trade as the volatility of liquidity increases. These two kinds of impact lower rational investors’ required return. The noise traders not only drive the price deviating from fundamental value, but also influence the liquidity dimensions.

Keywords: sentiment, trading volume, volatility

JEL Classification: G12, G14

Suggested Citation

Lei, Violet U. T. and So, Simon M. S. and Zou, Maggie, Investor Sentiment - Relationship between VIX and Trading Volume (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=2136802 or http://dx.doi.org/10.2139/ssrn.2136802

Violet U. T. Lei

affiliation not provided to SSRN ( email )

Simon M. S. So (Contact Author)

University of Macau ( email )

Macau

Maggie Zou

affiliation not provided to SSRN ( email )

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