Trading volume and Arbitrage

Serge Darolles and Gaelle Le Fol

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Abstract: Decomposing returns into market and stock specific components is common practice and forms the basis of popular asset pricing models. What about volume? Can volume be decomposed in the same way as returns? Lo and Wang (2000) suggest such a decomposition. Our paper contributes to this literature in two different ways. First, we provide a model to explain why volumes deviate from the benchmark. Our interpretation is in terms of arbitrage strategies and liquidity. Second, we propose a new efficient screening tool that allows practitioners to extract specific information from volume time series. We provide an empirical illustration of the relevance and the possible uses of our approach on daily data from the FTSE index from 2000 to 2002.

Keywords: Liquidity; Market portfolio; Volume; Arbitrage (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal.science/hal-01632841v1
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Citations: View citations in EconPapers (3)

Published in GSTF : Journal on Business Review, 2014, 3 (3)

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Related works:
Working Paper: Trading Volume and Arbitrage (2014)
Working Paper: Trading volume and Arbitrage (2014)
Working Paper: Trading Volume and Arbitrage (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01632841

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