Asymmetric information and the distribution of trading volume
Matthijs Lof () and
Jos van Bommel
No 1, Research Discussion Papers from Bank of Finland
We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we find that firm-year observations of VCV, computed from daily trading volumes, are correlated with extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements.
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
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Working Paper: Asymmetric information and the distribution of trading volume (2018)
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