Trading Activity, Quoted Liquidity, and Stock Volatility

Li Jiang and Lawrence Kryzanowski
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Li Jiang: Hong Kong Baptist University, Hong Kong
Lawrence Kryzanowski: Concordia University, Canada

Multinational Finance Journal, 1997, vol. 1, issue 3, 199-227

Abstract: In this article, we examine dynamic relationships between volatility and various microstructure measures of trade activity and quoted liquidity for each component stock in the Toronto Stock Exchange 35 Index and for the Toronto 35 Index Participation Shares. When volatility is conditioned on number of trades and quoted liquidity, trading volume provides no incremental explanatory power. Thus, the number of trades appears to be a better proxy for Information flow. Furthermore, investigation into partitioned volume suggests that the number of trades is more effective than the unexpected volume in explaining volatility. Measures of quoted liquidity also play a significant role in explaining intra day volatility. Bid-ask spreads and quote depth are positively and negatively related to volatility, respectively. Consistent with the lack of information signal, no trade outcomes are negatively related to volatility.

Keywords: volatility; volatility determinants; and market microstructure (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:1:y:1997:i:3:p:199-227

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