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Asymmetric Information and the Distribution of Trading Volume
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volume, VCV, as a new and easily computable measure of information asymmetry
in security markets. We derive from a simple microstructure model that VCV is
an increasing function of the proportion of informed trade. Simulations confirm this
result under more general assumptions. Empirically, we find that VCV is highly correlated
to extant measures of asymmetric information in the cross-section of US stocks.
Moreover, VCV sharply decreases after earnings announcements resolve information
asymmetries.
Author(s):
Matthijs Lof
Aalto University
Finland
Jos van Bommel
Luxembourg School of Finance
Luxembourg