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Trading Volume, Information Asymmetry, and Timing Information

Trading Volume, Information Asymmetry, and Timing Information ABSTRACT This paper investigates trading volume before scheduled and unscheduled corporate announcements to explore how traders respond to private information. I show that cumulative trading volume decreases inversely to information asymmetry prior to scheduled announcements, while the opposite relation holds for volume after the announcement. In contrast, trading volume before unscheduled announcements increases dramatically and shows little relation to proxies for information asymmetry. I investigate the behavior of market makers and find that they act appropriately by increasing price sensitivity before all announcements, implying that they extract timing information from their order books. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Trading Volume, Information Asymmetry, and Timing Information

The Journal of Finance , Volume 60 (1) – Feb 1, 2005

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References (44)

Publisher
Wiley
Copyright
© American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.2005.00734.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper investigates trading volume before scheduled and unscheduled corporate announcements to explore how traders respond to private information. I show that cumulative trading volume decreases inversely to information asymmetry prior to scheduled announcements, while the opposite relation holds for volume after the announcement. In contrast, trading volume before unscheduled announcements increases dramatically and shows little relation to proxies for information asymmetry. I investigate the behavior of market makers and find that they act appropriately by increasing price sensitivity before all announcements, implying that they extract timing information from their order books.

Journal

The Journal of FinanceWiley

Published: Feb 1, 2005

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