A Look Inside the Shifting Volume Smile for U.S. Equities

Abstract

Industry reports on the intraday volume profile of US equities, known to many as the “volume smile,” have noted that volumes have been shifting towards the closing auctions. In this paper, we study how volume profiles have evolved over the last three years for different groups of US equities. We analyze how the percent of daily volume has changed in three parts of the trading day: opening auctions; the last 15 minutes of continuous trading; and closing auctions. While much of the trade press tends to treat volume trends as universal across US equities, we conclude that volume shifts can vary considerably across different securities. Our results have practical implications for algorithmic trading strategies, which highlights the importance of using volume forecast models that are symbol-specific or specific to a group of securities with similar liquidity characteristics, and that also account for the fact that intraday volume profiles change over time.