andVolume–ReturnRelationAtimevaryingmodelbased.pptVIP

2004/12/20 Information Asymmetry and Volume-Return Relation Information Asymmetry and Volume –Return Relation?A time varying model based on order imbalance of individual stock Yongchern Su Hanching Huang Key Issues Analyze the order imbalance - return effect, effect of return autocorrelation and volume - volatility effect simultaneously. Use intraday data ( 90 second, 15 minute ) to express the dynamic relation. Literature review on the relation between return and order imbalances Order imbalances reveal more information than volume. Large order imbalance has great impact on price movement. Signal private information (Kyle (1985)) Exert pressure on market maker’s inventory and prompt a change in quotes (Spiegel and Subrahmanyam (1995)) Literature review on the relation between return and order imbalances Order imbalances are positively autocorrelated. Herding (Scharfstein and Stein (1990) Split orders over time to reduce price impact ( Kyle(1985)) Literature review on the relation between return and order imbalances Chordia and Subrahmanyam (2004) The expectation of the price change conditional on the contemporaneous and lagged imbalances are positive and negative respectively. Literature review about stock return At the aggregate levels , the returns tend to reverse themselves on high-volume days. (Campbell et al.(1993)) In the individual stocks , the returns tend to continue on low-transactions securities.(Conrad et al.(1994)) Literature review on the relation between volume and return Llorente, Michaely,Saar,and Wang (2002)(LMSW) reconciles the contrasting empirical results . Hedging trades -- returns reversalsSpeculative trades – returns continue. Literature review on the relation between volume and volatility Chan and Fong (2000) Order imbalance plays a role in the volatility - volume relation for the relation becomes weaker after controlling the return impacts of the order imbalances. Objectives Test the contempora