Decomposing the Dynamics of Intra-Day Trading Activity and Trading Outcomes

55 Pages Posted: 29 Sep 2016 Last revised: 7 Feb 2017

Yashar Heydari Barardehi

Ohio University - Department of Economics

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: February 6, 2017

Abstract

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

Barardehi, Yashar Heydari 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

Yashar Heydari Barardehi (Contact Author)

Ohio University - Department of Economics ( email )

319 Bentley Annex
Athens, OH 45701-2979
United States

HOME PAGE: http://sites.google.com/site/barardehi

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

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