Economics at your fingertips  

The price-volume relationship caused by asset allocation based on Kelly criterion

Kaiyang Wang and Haizhen Yang

Physica A: Statistical Mechanics and its Applications, 2018, vol. 503, issue C, 1-8

Abstract: It is noticed that there is a relation between assets’ return and trade volume in financial markets, but existing theory could not explain how exactly they are connected or what the relation is in a general scenario. Based on the hypothesis that investors who adopt a Kelly trading strategy will adjust their position periodically, we present a model describing the explicit price-volume relation. The model shows that factors related with the volume of trade are: (1) the total volume of the risk asset; (2) the optimal proportion of the risk asset implied by the Kelly criterion; and (3) the accumulated absolute deviation of the risk asset’s return from the risk-free rate. In a multi-asset scenario, the factor (2) and (3) of one asset could partly explain other assets’ trading volume. Empirical test with data from the Chinese and the U.S. stock markets verifies such relation.

Keywords: Price-volume relationship; Kelly criterion; Stock markets (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.physa.2018.02.186

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-08-06
Handle: RePEc:eee:phsmap:v:503:y:2018:i:c:p:1-8