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Trader Type Effects on the Volatility-Volume Relationship

Trader Type Effects on the Volatility-Volume Relationship
Author: Aris Kartsaklas
Publisher:
Total Pages: 36
Release: 2010
Genre:
ISBN:

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This paper examines empirically the volatility-volume relationship implied by various market microstructure models which associate movements in prices and trading volume with information, dispersion of beliefs and trading motives. Our unique dataset allows to investigate whether different types of traders (members vs non-members, institutional vs individual) have a positive or negative effect upon volatility. Our empirical results show that surprises in non-member investors' trading volume are positively related with volatility in most of the cases. These results are more reinforcing in the case of log-volume and generally consistent with existing theoretical and empirical evidence. As regards member investors, we primarily find that unexpected volume is positively related to volatility, providing further support for the argument that informed rational speculators exacerbate volatility especially when noise traders follow positive feedback strategies. Another result of our study is that the coefficients relating the unexpected component of open interest with volatility are uniformly negative, implying that an increase in open interest during the day lessens the impact of a volume shock in volatility. Finally, when we allow for time-to-maturity effects, non-member institutional investors are not associated with any movement in volatility while surprises in open interest are associated with more volatility towards the end of the contract life.


The Impact of Trader Type on the Futures Volatility-Volume Relation

The Impact of Trader Type on the Futures Volatility-Volume Relation
Author: Robert T. Daigler
Publisher:
Total Pages:
Release: 2001
Genre:
ISBN:

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We examine the volatility-volume relation in futures markets using volume data categorized by type of trader. We find that the positive volatility-volume relation is driven by the general public, a group of traders who are distant from the trading floor and therefore without precise information on order flow. Clearing members and floor traders who observe order flow often decrease volatility. Our findings are consistent with Shalen's (1993) hypothesis that uninformed traders who cannot differentiate liquidity demand from fundamental value change increase volatility.


Volume Characteristics by Type of Trader Using the Liquidity Databank

Volume Characteristics by Type of Trader Using the Liquidity Databank
Author: Robert T. Daigler
Publisher:
Total Pages:
Release: 1998
Genre:
ISBN:

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This paper examines the volume-volatility-type of trader relationship by employing daily volume of five futures contracts segregated into four types of traders. This breakdown of total volume into its components allows us to test whether one or more groups can be associated with the level of volatility. In addition, we examine whether using volume by type of trader improves the association of volume to volatility. The results show that the general public is the most important category affecting the volatility-volume relationship. We associate the general public with uninformed traders and their more disperse set of beliefs. Using volume by type of trader provides superior R squared values to what currently appears in the literature. We also find that the strongest volume-volatility associations occur in the highest and lowest quintiles of volatility. Further examination of the individual volume series shows substantial skewness and kurtosis for most series and large cross correlations between series for adjacent days.


Dynamic Volume-Volatility Relation

Dynamic Volume-Volatility Relation
Author: Hanfeng Wang
Publisher:
Total Pages: 39
Release: 2005
Genre:
ISBN:

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We find that trading volume not only contributes positively to the contemporaneous volatility, as indicated in previous literature, but also contributes negatively to the subsequent volatility. And this pattern between trading volume and volatility is consistently held among individual stocks, volume-based portfolios, size-based portfolios, and market index, and among daily data and weekly data. These empirical findings tend to support that the Information-Driven-Trade (IDT) hypothesis is more pervasive and powerful in explaining trading activities in the stock market than the Liquidity-Driven-Trade (LDT) hypothesis. Our additional tests obtain three interesting findings, 1) liquidity and the degree of information asymmetry influence the relation between volume and subsequent volatility, 2) the effect of volume on subsequent volatility and volume size have a non-linear relationship, which is consistent with Barclay and Warner (1993, JFE)'s finding, 3) the effect of volume on subsequent volatility is asymmetry when the stock price moves up and when the stock price moves down, and we attribute this asymmetry to the short-selling constraints.


Duration, Volume and Volatility Impact of Trades

Duration, Volume and Volatility Impact of Trades
Author: Simone Manganelli
Publisher:
Total Pages: 47
Release: 2005
Genre:
ISBN:

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This paper develops a new econometric framework to model duration, volume and volatility simultaneously. We obtain an econometric reduced form that incorporates causal and feedback effects among these variables. We construct impulse-response functions that show how the system reacts to a perturbation of its long-run equilibrium. The methodology is applied to two groups of stocks from NYSE, classified according to their trade intensity. We document how the two groups of stocks are characterised by different dynamics: 1) volume is more persistent for frequently traded stocks than for the infrequently traded ones; 2) the well-known positive relationship between volume and price variability holds only for the frequently traded stocks at the ultra high frequency level; 3) the trade arrival process can be considered exogenous only for the not frequently traded stocks; 4) the more frequently traded the stock, the faster the market returns to its full information equilibrium after a perturbation.


Handbook of Quantitative Finance and Risk Management

Handbook of Quantitative Finance and Risk Management
Author: Cheng-Few Lee
Publisher: Springer Science & Business Media
Total Pages: 1700
Release: 2010-06-14
Genre: Business & Economics
ISBN: 0387771174

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Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. Increasingly, the tools of financial analysis are being applied to assess, monitor, and mitigate risk, especially in the context of globalization, market volatility, and economic crisis. This two-volume handbook, comprised of over 100 chapters, is the most comprehensive resource in the field to date, integrating the most current theory, methodology, policy, and practical applications. Showcasing contributions from an international array of experts, the Handbook of Quantitative Finance and Risk Management is unparalleled in the breadth and depth of its coverage. Volume 1 presents an overview of quantitative finance and risk management research, covering the essential theories, policies, and empirical methodologies used in the field. Chapters provide in-depth discussion of portfolio theory and investment analysis. Volume 2 covers options and option pricing theory and risk management. Volume 3 presents a wide variety of models and analytical tools. Throughout, the handbook offers illustrative case examples, worked equations, and extensive references; additional features include chapter abstracts, keywords, and author and subject indices. From "arbitrage" to "yield spreads," the Handbook of Quantitative Finance and Risk Management will serve as an essential resource for academics, educators, students, policymakers, and practitioners.


Studies in International Economics and Finance

Studies in International Economics and Finance
Author: Naoyuki Yoshino
Publisher: Springer Nature
Total Pages: 671
Release: 2022-03-30
Genre: Business & Economics
ISBN: 9811670625

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This festschrift volume presents discussions on contemporary issues in international economics and finance. It is aimed to serve as a reference material for researchers. There are two broad sections of the book -- International Macroeconomics and International Finance. The chapters in the International Macroeconomics section discuss critical topics like aggregate level macro model for India with a new Keynesian perspective, balance of payments, service sector exports, foreign exchange constraints for import demands, foreign direct investment and knowledge spill over, the relationship between forex rate fluctuation and investment, Institutional quality-trade openness-economic growth nexus, currency crises and debt-deficit relationship in the BRICS countries in the backdrop of COVID-19. Apart from these, various analytical issues related to macroeconomic policies are also covered in this section. The topics discussed includes the nature of forex market interventions, the issue of disinvestment and privatization, changing nature of fiscal policy, the inflation-growth nexus, macroeconomic simulation modelling, measuring core inflation, central bank credibility, monetary policy, inflation targeting, Infrastructure, trade, unemployment and inequality nexus. In the International Finance section, topics such as COVID-19 induced financial crisis, commodity futures volatility, stock market connectivity, volatility persistence, determinants of sovereign bond yields, FII and stock market volatility, cryptocurrency price formation, financialization of Indian commodity market, and a Keynesian view of the financial crisis are discussed. Overall, thirty two chapters in the volume discuss cutting edge research in the areas of the two sections. A tour de force... a lucid guide to some of the diverse and complex issues in International Macroeconomics and Finance. This collection of scholarly works is a fitting tribute to respected Prof. Bandi Kamaiah and his enviable academic contributions. - Prof. Y V Reddy, Former Governor, Reserve Bank of India This volume comprising thoughtful essays by our leading scholars on some of important policy issues that India is facing is indeed a rich tribute to Professor Bandi Kamaiah . This book will greatly benefit the academic community as well as our policy makers. - Prof. Vijay Kelkar, Chairman, 13th Finance Commission of India; Chairman, India Development Foundation, Mumbai, India Noted economists from India and abroad gather to apply the rigorous searchlight that Professor Bandi Kamaiah used so effectively in his career. Major current topics in macroeconomics and international finance are effectively explored in the volume. - Prof. Ashima Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai, India; and Member, Monetary Policy Committee of Reserve Bank of India This volume of 32 papers in macroeconomics, international economics, and international finance is intended as a tribute to the eminent econometrician , Prof B Kamaiah. Post-graduate students and researchers will find much valuable literature in the volume, which is a fitting tribute to Prof Kamaiah. The editors and authors deserve rich compliments. - Prof. K L Krishna, Former Director, Delhi School of Economics, New Delhi, India I am so happy to hear that Dr. Kamaiah's colleagues and ex-students are bringing out a special volume of articles in his honor. Nothing can be more appropriate. Dr. Kamaiah, being a man of tremendous publications, deserves this tribute. I wish all the luck and success to the new book. - Prof. Kishore Kulkarni, Distinguished Professor of Economics, Metropolitan State University of Denver, USA


Time and Dynamic Volume-Volatility Relation

Time and Dynamic Volume-Volatility Relation
Author: Xiaoqing Eleanor Xu
Publisher:
Total Pages:
Release: 2011
Genre:
ISBN:

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This paper examines volume and volatility dynamics by accounting for market activity measured by the time duration between two consecutive transactions. A time-consistent vector autoregressive model (VAR) is employed to test the dynamic relationship between return volatility and trades using intraday irregularly spaced transaction data. The model is used to identify the informed and uninformed components of return volatility and to estimate the speed of price adjustment to new information. It is found that volatility and volume are persistent and highly correlated with past volatility and volume. The time duration between trades has a negative effect on the volatility response to trades and correlation between trades. Consistent with microstructure theory, shorter time duration between trades implies higher probability of news arrival and higher volatility. Furthermore, bid-ask spreads are serially dependent and strongly affected by the informed trading and inventory costs.


Trading Volatility

Trading Volatility
Author: Colin Bennett
Publisher:
Total Pages: 316
Release: 2014-08-17
Genre:
ISBN: 9781461108757

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This publication aims to fill the void between books providing an introduction to derivatives, and advanced books whose target audience are members of quantitative modelling community. In order to appeal to the widest audience, this publication tries to assume the least amount of prior knowledge. The content quickly moves onto more advanced subjects in order to concentrate on more practical and advanced topics. "A master piece to learn in a nutshell all the essentials about volatility with a practical and lively approach. A must read!" Carole Bernard, Equity Derivatives Specialist at Bloomberg "This book could be seen as the 'volatility bible'!" Markus-Alexander Flesch, Head of Sales & Marketing at Eurex "I highly recommend this book both for those new to the equity derivatives business, and for more advanced readers. The balance between theory and practice is struck At-The-Money" Paul Stephens, Head of Institutional Marketing at CBOE "One of the best resources out there for the volatility community" Paul Britton, CEO and Founder of Capstone Investment Advisors "Colin has managed to convey often complex derivative and volatility concepts with an admirable simplicity, a welcome change from the all-too-dense tomes one usually finds on the subject" Edmund Shing PhD, former Proprietary Trader at BNP Paribas "In a crowded space, Colin has supplied a useful and concise guide" Gary Delany, Director Europe at the Options Industry Council