Intraday Volume — Volatility Relation of the DOW: A Behavioral Interpretation

Ali F. Darrat, Shafiqur Rahman and Maosen Zhong
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Ali F. Darrat: Louisiana Tech University, USA
Shafiqur Rahman: Portland State University, USA
Maosen Zhong: The University of Queensland, Australia

Chapter 6 in Advances in Quantitative Analysis of Finance and Accounting, 2008, pp 117-125 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn a recent article, Darrat et al. (2003) report results for the DJIA in which higher volume causes higher volatility without significant feedback. These empirical results have interesting behavioral interpretations. It is argued that the observed positive causality from volume to volatility supports overconfidence hypothesis over other alternatives, including Andreassen's (1990) salience hypothesis. The evidence suggests that investors suffer from a psychological error (overconfidence), inciting them to trade too aggressively and drive prices away from their fundamental values.

Keywords: Hedging Strategies; Expense Mismatching; Stock Split; Trading Volume; Portfolio Optimization; Intraday Patterns; Earnings Management; International Winner-Loser Effect (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2008
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