Dynamic Trading Volume

37 Pages Posted: 28 May 2020

See all articles by Paolo Guasoni

Paolo Guasoni

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

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Date Written: April 2017

Abstract

We derive the process followed by trading volume, in a market with finite depth and constant investment opportunities, where a large 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. Unlike the frictionless theory, finite depth excludes leverage and short sales because such positions may not be solvent even with continuous trading.

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

Suggested Citation

Guasoni, Paolo, Dynamic Trading Volume (April 2017). Mathematical Finance, Vol. 27, Issue 2, pp. 313-349, 2017, Available at SSRN: https://ssrn.com/abstract=3613152 or http://dx.doi.org/10.1111/mafi.12099

Paolo Guasoni (Contact Author)

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

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

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

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