The Volume Return Relationship Under Asymmetry of Info and Short Sales Prohibitions

52 Pages Posted: 3 Dec 2001

See all articles by Pongsak Hoontrakul

Pongsak Hoontrakul

Sasin of Chulalongkorn University

Peter Ryan

University of Ottawa - Faculty of Administration

Stylianos Perrakis

Concordia University, Quebec - John Molson School of Business

Date Written: July 2001

Abstract

This study examines the behaviour of stock prices in the presence of asymmetric information, when market participants are prohibited from short selling. We model the volume behaviour when high or low signals are observed by insiders, who are unable to sell unless they own stock. We demonstrate that prices adjust to good news on high volume and to bad news on low volume; furthermore, we show that the speed of adjustment is greater on bad news, that is, the price falls more quickly to a lower equilibrium price than it rises to the price corresponding to good news. Under mild conditions on the market microstructure, there is a positive intertemporal correlation between volume and return, with volume leading; additional conditions lead to the speed of adjustment result. The primary volume anomaly is tested by an empirical study of stocks trading on the Stock Exchange of Thailand, where short sales are prohibited.

Suggested Citation

Hoontrakul, Pongsak and Ryan, Peter and Perrakis, Stylianos, The Volume Return Relationship Under Asymmetry of Info and Short Sales Prohibitions (July 2001). Available at SSRN: https://ssrn.com/abstract=280064 or http://dx.doi.org/10.2139/ssrn.280064

Pongsak Hoontrakul (Contact Author)

Sasin of Chulalongkorn University ( email )

Sasa Patasala Building, Soi Chulalongkorn 12 (2)
Phyathai Road
Bangkok 10330
Thailand
+662 954 1689 (Phone)
+662 954 1690 (Fax)

HOME PAGE: http://www.pongsak.hoontrakul.com

Peter Ryan

University of Ottawa - Faculty of Administration ( email )

136 Jean-Jacques Lussier
Room 257A
Ottawa, Ontario K1N 6N5
Canada
613-562-5800 Ext. 4733 (Phone)

Stylianos Perrakis

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

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