Liquidity, Information, and Infrequently Traded Stocks

J. OF FINANCE, Vol. 51 No. 4, September 1996

Posted: 6 Nov 1996  

David Easley

Cornell University - Department of Economics

Nicholas M. Kiefer

Cornell University

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Joseph B. Paperman

Cornell University

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Abstract

This paper investigates whether differences in information- based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information- based trading for a sample of NYSE listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume-decile stocks. Our most important empirical result is that the probability of information-based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information-based trading on spreads.

JEL Classification: G14

Suggested Citation

Easley, David and Kiefer, Nicholas M. and O'Hara, Maureen and Paperman, Joseph B., Liquidity, Information, and Infrequently Traded Stocks. J. OF FINANCE, Vol. 51 No. 4, September 1996. Available at SSRN: https://ssrn.com/abstract=7881

David Easley

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Nicholas M. Kiefer

Cornell University ( email )

Building 350
Ithaca, NY 14853
United States
607-255-6315 (Phone)
607-539-6366 (Fax)

Maureen O'Hara (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Joseph B. Paperman

Cornell University ( email )

Ithaca, NY 14853
United States

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