Asymmetric information and the distribution of trading volume

Matthijs Lof and Jos van Bommel

Journal of Corporate Finance, 2023, vol. 82, issue C

Abstract: We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and simple measure of information asymmetry in security markets. We use a microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we obtain VCV from daily observations of trading volume and provide extensive evidence supporting the hypothesis that VCV indicates information asymmetry, by studying return reversals, institutional ownership, and extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements and other information disclosures.

Keywords: VCV; Trading volume; Informed trading; Information asymmetry (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:82:y:2023:i:c:s092911992300113x

DOI: 10.1016/j.jcorpfin.2023.102464

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