Recent trends in trading activity and market quality
Abstract
We explore the sharp uptrend in recent trading activity and accompanying changes in market efficiency. Higher turnover has been associated with more frequent smaller trades, which have progressively formed a larger fraction of trading volume over time. Evidence indicates that secular decreases in trading costs have influenced the turnover trend. Turnover has increased the most for stocks with the greatest level of institutional holdings, suggesting professional investing as a key contributor to the turnover trend. Variance ratio tests suggest that more institutional trading has increased information-based trading. Intraday volatility has decreased and prices conform more closely to random walk in recent years. The sensitivity of turnover to past returns has increased and cross-sectional predictability of returns has decreased significantly, revealing a more widespread use of quantitative trading strategies that allow for more efficient securities prices.
Additional Information
© 2011 Elsevier B.V. Received 14 January 2010, Revised 11 October 2010, Accepted 22 October 2010, Available online 16 March 2011. We thank an anonymous referee, Bill Schwert (the editor), Viral Acharya, Ashwini Agarwal, Imad Al Akhdar, Yakov Amihud, Amber Anand, Brad Barber, Antonio Bernardo, Menachem Brenner, Sabrina Buti, Henry Cao, Bruce Carlin, George Cashman, Kalok Chan, Bhagwan Chowdhry, Jack Cooney, Ronnie Davis, Mathijs van Dijk, Ingolf Dittman, David Goldreich, Joel Hasbrouck, Byoung-Hyoun Hwang, Russell James, Bob Jarrow, Hao Jiang, Wei Jiang, Kose John, Charles Jones, Marcin Kacperczyk, Mark Kamstra, Andrew Karolyi, Elena Kotlyar, David Lesmond, Tom McCurdy, Tarun Mukherjee, Maureen O'Hara, Andreas Park, Lasse Pedersen, Gideon Saar, Mark Seasholes, Mike Stegemoller, Marti Subrahmanyam, Kevin Tang, Qing Tong, Chris Vincent, Jiang Wang, Wei Wang, Peihwang Wei, Jonathan Weaver, Ryan Whitby, Kent Womack, Xing Zhou, and seminar participants at Cornell University, McGill University, New York University, University of Toronto, Texas Tech University, Rutgers University, University of New Orleans, UCLA, the AFA meetings, the First Erasmus Liquidity Conference, the HKUST finance symposium, and the NISM conference on securities markets for valuable comments.Attached Files
Submitted - SSRN-id1700191.pdf
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Additional details
- Eprint ID
- 95155
- DOI
- 10.1016/j.jfineco.2011.03.008
- Resolver ID
- CaltechAUTHORS:20190501-154250093
- Created
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2019-05-01Created from EPrint's datestamp field
- Updated
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2021-11-16Created from EPrint's last_modified field