Pump up the Volume: Income Risk and Counter-cyclical Asset Trading

Gian Domenico Sarolli
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Gian Domenico Sarolli: Department of Economics and Business, Drew University

Eastern Economic Journal, 2016, vol. 42, issue 4, No 7, 594-610

Abstract: Abstract This paper develops a model of consumption smoothing using financial assets, incomplete markets, and idiosyncratic shocks. It contributes to the literature on asset markets by exposing a structural break in stock trading volume in the 1970s, which in turn demonstrates a negative correlation between trading volume and aggregate output. The model is able to not only match the correct sign of this correlation but also a portion of the standard deviation of turnover.

Keywords: trading volume; asset markets; risk sharing; G11; G12; E32 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1057/eej.2014.80

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