Volatility, trading activity and maximum lot amounts: Evidence from Borsa Istanbul

Abstract

Intraday analyses of volatility-volume relation by decomposing the volume into number of trades and average trade size is measured in Borsa Istanbul equity market. Results confirm that the number of trades has more explanatory power over the short-term volatility comparably parallel with the existing literature. The unique maximum lot amount rule, classifying stocks according to their average trade size and limiting the order size for the stocks traded, has given the chance to control for the size of the trades naturally and analyse the relation of the volatility with other trading activity figures. The number of trades is the main factor explaining the variation in the short-term volatility parallel to the literature. Results show that heterogeneous effects arise from binding of trading constraints. The spread, which is mostly equal to the price tick, has the power to explain the volatility for high trading volumes significantly. Analyses show that stealth trading is possible for thinly traded stocks.