Spectral Volume Models: Universal High-Frequency Periodicities in Intraday Trading Activities
88 Pages Posted: 30 Sep 2022 Last revised: 10 Feb 2025
Date Written: September 21, 2022
Abstract
We develop spectral volume models to systematically estimate, explain, and exploit the high-frequency periodicity in intraday trading activities using Fourier analysis. The framework consistently recovers periodicities at specific frequencies in three steps, despite their low signal-to-noise ratios. This reveals persistent and universal high-frequency periodicities in the United States (US) and Chinese stock markets in recent years, and the dominant frequencies explain a significant fraction of the total variance of intraday volumes. We provide evidence that this phenomenon likely reflects the behaviors of trading algorithms with repeated and regular trading instructions. Finally, we demonstrate that uncovering such high-frequency periodicities improves intraday volume predictions and VWAP execution qualities, yields insights for price informativeness of algorithmic trading, and generates excess returns.
Keywords: Trading volume; Periodicity; Algorithmic trading; VWAP execution; Price informativeness; Excess return
JEL Classification: C32, C55, G12, G14
Suggested Citation: Suggested Citation