37 Pages Posted: 3 Feb 2016 Last revised: 24 Aug 2017
Date Written: August 1, 2017
We propose the Volume Coefﬁcient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we ﬁnd that ﬁrm-year observations of VCV, computed from daily trading volumes, are correlated with extant ﬁrm-level measures of symmetric information in the cross-section of US stocks. Moreover, from trading volumes around earnings announcement dates, we ﬁnd that VCV steeply decreases after potential information asymmetries are resolved.
Keywords: VCV, Trading volume, Informed trading
JEL Classification: D82, G12, G14
Suggested Citation: Suggested Citation
Lof, Matthijs and van Bommel, Jos, Asymmetric Information and the Distribution of Trading Volume (August 1, 2017). Available at SSRN: https://ssrn.com/abstract=2726187