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Dynamic Trading Volume

36 Pages Posted: 3 Oct 2012 Last revised: 13 Dec 2014

Paolo Guasoni

Boston University - Department of Mathematics and Statistics; Dublin City University - School of Mathematical Sciences

Marko Weber

Dublin City University - School of Mathematical Sciences; Scuola Normale Superiore

Date Written: October 2, 2012

Abstract

We derive the process followed by trading volume, in a market with finite depth and constant investment opportunities, where a representative investor, with a long horizon and constant relative risk aversion, trades a safe and a risky asset. Trading volume approximately follows a Gaussian, mean-reverting diffusion, and increases with depth, volatility, and risk aversion. The model generates an endogenous ban on leverage and short-selling.

Keywords: trading volume, long-run, portfolio choice, liquidity

JEL Classification: G11, G12

Suggested Citation

Guasoni, Paolo and Weber, Marko, Dynamic Trading Volume (October 2, 2012). Boston U. School of Management Research Paper No. 2012-28. Available at SSRN: https://ssrn.com/abstract=2155944 or http://dx.doi.org/10.2139/ssrn.2155944

Paolo Guasoni (Contact Author)

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Marko Weber

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy

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