Market Statistics and Technical Analysis: The Role of Volume

Market Statistics and Technical Analysis: The Role of Volume ABSTRACT We investigate the informational role of volume and its applicability for technical analysis. We develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. We show that volume provides information on information quality that cannot be deduced from the price statistic. We show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. We also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis thus arises as a natural component of the agents' learning process. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Market Statistics and Technical Analysis: The Role of Volume

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Publisher
Wiley
Copyright
1994 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1994.tb04424.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We investigate the informational role of volume and its applicability for technical analysis. We develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. We show that volume provides information on information quality that cannot be deduced from the price statistic. We show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. We also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis thus arises as a natural component of the agents' learning process.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1994

References

  • Simple technical trading rules and the stochastic properties of stock returns
    Brock, Brock; Lakonishok, Lakonishok; LeBaron, LeBaron
  • Time and the process of security price adjustment
    Easley, Easley; O'Hara, O'Hara

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