Information Asymmetry, Trade Size, and the Dynamic Volume-Return Relation: Evidence from the Australian Securities Exchange

Yang Sun, Huu Nhan Duong () and Harminder Singh

The Financial Review, 2014, vol. 49, issue 3, 539-564

Abstract: This paper investigates the influence of information asymmetry on the cross-sectional variation of volume-return relation. We find that the dynamic volume-return relation within medium-size trades has the most significant response to the degree of information asymmetry. We also show that the effect of information asymmetry on the volume-return dynamics migrates to small-size trades in recent years, especially in larger stocks. These results are consistent with the notion that informed traders prefer medium-size trades and this preference has shifted to small-size trades. Our findings highlight the importance of incorporating informed traders’ trade-size decision in the examination of the dynamic volume-return relation.

Date: 2014
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