55 Pages Posted: 29 Sep 2016 Last revised: 7 Feb 2017
Date Written: February 6, 2017
Separating trading activity from trading volume, we find that although calendar-time return volatility follows a U-shaped pattern over the trading day, the return volatility associated with trading stock-specific fixed-dollar positions falls: higher calendar-time volatilities near close solely reflect greater trading volumes. Controlling for time-of-day, trade-time return volatility and price impacts are inversely related to trading activity. Trading activity, not trading location or order type, underlies these patterns. Unexpected trading activity drives patterns early in the day, while expected activity matters later. Our findings support predictions of models featuring strategic inventory-rebalancing traders, and hint at the importance of imperfectly-competitive liquidity provision.
Keywords: Trading Activity, Volatilty, Trade-Time, Time-of-Day Pattern, Liquidity
JEL Classification: G10, G14, G20
Suggested Citation: Suggested Citation
Barardehi, Yashar H. and Bernhardt, Dan, Decomposing the Dynamics of Intra-Day Trading Activity and Trading Outcomes (February 6, 2017). Available at SSRN: https://ssrn.com/abstract=2844936