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Asymmetric information and the distribution of trading volume

Matthijs Lof () and Jos van Bommel

No 1/2018, Research Discussion Papers from Bank of Finland

Abstract: 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)
Date: 2018-01-22
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