Return Volatility, Cross-Sectional Dispersion, and Trading Activity in the Equity and Futures Markets
Posted: 14 Sep 1999
Date Written: September 1993
Several studies provide theoretic analysis of agents' motivations for trading in financial markets. Broadly speaking, these studies imply that trading volume results from (i) information flows, (ii) cross-sectional differences in agents' assessment of value, and (iii) agents' random liquidity needs. In this study, we test some implications of these theories. We provide specific empirical evidence on relations between trading volumes in both the spot equity market and the equity index futures market, and proxies for market wide information flow, security specific information flow, and cross-sectional divergences in traders' opinions. The empirical results are generally consistent with the implications arising from the theoretic models.
JEL Classification: G14
Suggested Citation: Suggested Citation