Abstract
AbstractThis study presents an in‐depth exploration of market dynamics and analyses potential drivers of trading volume. The study considers established facts from the literature, such as calendar anomalies, the correlation between volume and price change, and this relation's asymmetry, while proposing a variety of time series models. The results identified some key volume predictors, such as the lagged time series volume data and historical price indicators (e.g. intraday range, intraday return, and overnight return). Moreover, the study provides empirical evidence for the price–volume relation asymmetry, finding an overall price asymmetry in over 70% of the analysed stocks, which is observed in the form of a moderate overnight asymmetry and a more salient intraday asymmetry. We conclude that volatility features, more recent data, and day‐of‐the‐week features, with a notable negative effect on Mondays and Fridays, improve the volume prediction model.
Highlights
This study investigates the drivers affecting the trading volume with an in‐sample analysis
We propose a model based on lagged time series and lagged smoothed time series in order to explain observed volumes in terms of recent time series; this follows the behavioural finance paradigm and represents market dynamics on the run, while assuming stationarity and disregarding outliers
Trading volume is extraordinarily large across developed stock exchanges, and many interesting patterns in prices and returns are closely related to the volume movement; volume is highly used in conjunction with price actions
Summary
This study investigates the drivers affecting the trading volume with an in‐sample analysis. The NYSE's turnover averaged more than 100% between 2004 and 2009, with 138% in 2008 (NYSE Euronext, 2016), meaning that the entire market value has changed hands once a year, it has decreased to significantly lower levels during the following years, averaging 72% for the 2010–2015 period. The literature review starts by setting the context of this study, that is, why volume prediction is important, followed by a review of studies on the types of the price–volume relation and its potential asymmetry. Trading volume is extraordinarily large across developed stock exchanges, and many interesting patterns in prices and returns are closely related to the volume movement; volume is highly used in conjunction with price actions. A normal day starts with pretrading auctions or opening auctions, in order to set the price after the nontrading hours during the night, when news came out, and is followed by continuous trading. In Europe, this phase can be temporarily halted by volatility interruptions, which trigger a 2‐ to 5‐min auction, called intraday auction, in case the price is changing more than ±5%, in order to set the price correctly
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