Sell Volume Research Articles

Uncertainty about what is in the price

A critical question facing speculators contemplating to trade on private information is whether their signal has already been priced in by the market. In our model, speculators assess the novelty of their information based on recent price movements, and market makers are aware that speculators might be trading on stale news. An asymmetric response to past price movements ensues: after price increases, buy volume – because it may result from stale news trading – has a lower price impact than sell volume (and vice versa after price decreases). Consequently, return skewness is negatively related to lagged returns. We find strong support for these and other predictions using a comprehensive sample of US stocks.

Market making and electricity price formation in Japan

Market-making, a common trading practice, is often directed by regulators to improve the liquidity in new products, to make their prices more reliable as markers and to encourage new entrants. Establishing its effectiveness is sometimes elusive, however, as market participation and behaviour can be confounded by many special circumstances, especially in energy. We develop an unusual model-based approach in order to establish if a market-making intervention improved the fundamental price formation dynamics. In the context of the Japanese wholesale electricity auction, we develop a dynamic regime switching formulation to account for the distinct effects of buy-side and sell-side volumes on price formation, using temperature as a regime switching driver. The model has a nonlinear functionality that allows it to fit the spiky time series very effectively. The result is clarity that after a market-making intervention in 2017, the buy and sell volumes had more intuitive and distinct effects upon price formation, compared to previously. In addition, temperature information has been more coherently embedded in price and volatility fundamental modelling since the intervention. We argue that the model indicated a more balanced market with buy and sell side regime drivers behaving more consistently with improved market efficiency.

Do Mutual Funds Flows Lead to Fire-sales and Pose Systemic Risk?

Assessing systemic risk of mutual funds as a result of liquidity transformation is difficult because the frequency of flow and holdings data available is too low to properly isolate the price impact of redemption-driven sales of portfolio assets. Exchange-traded funds (ETFs) offer the advantage of daily observations of redemptions as well as the exact assets which might be sold in the underlying market. Exploiting this advantage, we show for extreme redemptions from individual corporate bond ETFs during normal times and stressed markets as well as for the largest aggregate redemptions from all corporate bond ETFs that the concern of systemic risk is not supported by the data. For the most extreme daily redemptions between 2009 and 2017, we find that for many bonds received in-kind for ETF shares, customer sell volumes in excess of average past daily customer sell volumes are either negative or large multiples of the maximum potential redemption implied sale of bonds. Further, we show that among the bonds with positive excess customer sell volumes, the extreme redemption implied sale of bonds relative to the standard deviations of past daily customer sell volumes was large for only very few of them. Corroborating the results, using regression analyses we find no evidence that extreme redemption implied sales of bonds led to abnormal negative price impacts in the underlying bond market. These findings imply that extreme redemption implied asset sales in the corporate bond market have not triggered wide-spread fire sales.

Credit Default Swaps and Corporate Bond Trading

Using regulatory data on CDS holdings and corporate bond transactions, I provide evidence for a liquidity spillover effect from CDS to bond markets. Bond trading volumes are 70% larger for investors with CDS positions written on the debt issuer. Moreover, higher CDS trading activity substantially improves the liquidity of the underlying bonds, particularly around rating downgrades. Additional analyses reveal that the spillover effect is partly driven by naked CDS positions, highlighting the adverse consequences of naked CDS bans for bond markets. The results suggest that both bond issuers and investors benefit from liquid CDS markets.

A Law of Large Numbers for Limit Order Books

We define a stochastic model of a two-sided limit order book in terms of its key quantities best bid [ask] price and the standing buy [sell] volume density. For a simple scaling of the discreteness parameters, that keeps the expected volume rate over the considered price interval invariant, we prove a limit theorem. The limit theorem states that, given regularity conditions on the random order flow, the key quantities converge in probability to a tractable continuous limiting model. In the limit model the buy and sell volume densities are given as the unique solution to first-order linear hyperbolic PDEs, specified by the expected order flow parameters. We calibrate order flow dynamics to market data for selected stocks and show how our model can be used to derive endogenous shape functions for models of optimal portfolio liquidation under market impact.

A functional limit theorem for limit order books with state dependent price dynamics

We consider a stochastic model for the dynamics of the two-sided limit order book (LOB). Our model is flexible enough to allow for a dependence of the price dynamics on volumes. For the joint dynamics of best bid and ask prices and the standing buy and sell volume densities, we derive a functional limit theorem, which states that our LOB model converges in distribution to a fully coupled SDE-SPDE system when the order arrival rates tend to infinity and the impact of an individual order arrival on the book as well as the tick size tends to zero. The SDE describes the bid/ask price dynamics while the SPDE describes the volume dynamics.

INDIVIDUAL MEAN-VARIANCE RELATION AND STOCK-LEVEL INVESTOR SENTIMENT

This research studies the effect of stock-level investor sentiment on individual stock returns’ mean-variance relation. Using unique buy and sell volume data of retail investors in Korean stock market, we find that a positive mean-variance relation is undermined among high-sentiment stocks, but holds among low-sentiment stocks. We adopt buy-sell imbalances of retail investors for individual stocks as a measure of stock-level investor sentiment. Further, our findings provide empirical evidence of a strong riskreturn trade-off among stocks with low retail concentration (e.g., large capitalization, high-priced, and growth stocks). Existing research only analyzes market-wide investor sentiment. However, we study the effect of stock-level investor sentiment on individual stock returns. Therefore, our findings suggest novel implications about the investment strategy that the stock-level investor sentiment is important when constructing portfolios based on variance.

Technical, fundamental, and combined information for separating winners from losers

This study examines how fundamental accounting information can be used to supplement technical information to separate momentum winners from losers. We first introduce a ratio of liquidity buy volume to liquidity sell volume (BOS ratio) to proxy the level of information asymmetry for stocks and show that the BOS momentum strategy can enhance the profits of momentum strategy. We further propose a unified framework, produced by incorporating two fundamental indicators—the FSCORE (Piotroski, 2000) and the GSCORE (Mohanram, 2005)—into momentum strategy. The empirical results show that the combined investment strategy includes stocks with a larger information content that the market cannot reflect in time, and therefore, the combined investment strategy outperforms momentum strategy by generating significantly higher returns.

Influence of the NaCl/LiF additives on structure, phasetransitions and dielectric properties of BSPT ceramics

Influence of the NaCl/LiF additives (with ratio 60:40) on structure parameters, phase transitions and dielectric properties of solid solutions close to the Morphotropic Phase Boundary in the system (1-x)BiScO3 - xPbTiO3 (x=0.635, 0.645) has been studied. Using as initial the BSPT powders prepared from nitrate solutions, dense single phase ceramic samples doped by 5, 10 and 15 w. % of NaCl/LiF have been prepared at 1313 - 1323 K (2 h). Shift of the BSPT compositions phase content from initial mixtures of Rhombohedral and Tetragonal phases to the region of Tetragonal phase was stimulated by addition of the NaCl/LiF additives. This effect is accompanied by decrease of the unit sell volume, increase in the c/a ratio and increase in the Curie temperature value from 668 to 730 K for x=0.635 and from 672 to 724 K for x=0.645 in compositions doped by 10 w. % of the NaCl/LiF additive.

Individual and institutional trading volume around firm-specific announcements

Purpose – The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX), during a period when the market becomes fragmented. Design/methodology/approach – This study uses intraday trading volume data in five-minute intervals prior to and after firm-specific announcements to measure individual and institutional abnormal volume. There are 70 such intervals per trading day and 254 trading days in the sample period. The first 10 minutes of trading (from 10.00 to 10.10 a.m.) is excluded to avoid the effect of opening auction and to ensure consistency in the “starting time” for all stocks. The volume transacted during five-minute intervals is aggregated and attributed to individual or institutional investors using Broker IDs. Findings – Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements. Research limitations/implications – The study is Australian focused, but the results are applicable to other limit order book markets of similar design. Practical implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Social implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Originality/value – These results will help regulators to design markets that are less predatory on individual investors.

Individual and Institutional Trading Volume Around Firm-Specific Announcements

We investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX). Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements. Our results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure.

Technical, Fundamental, and Combined Information for Separating Winners from Losers

This study examines how fundamental accounting information can be used to supplement technical information to separate momentum winners from losers. We first introduce a ratio of liquidity buy volume to liquidity sell volume (BOS ratio) to proxy the level of information asymmetry for stocks and show that the BOS momentum strategy can enhance the profits of momentum strategy. We further propose a unified framework, produced by incorporating two fundamental indicators — the FSCORE (Piotroski, 2000) and the GSCORE (Mohanram, 2005) — into momentum strategy. Empirical results show that the combined investment strategy includes stocks with larger information content that the market cannot reflect in time, and therefore, the combined investment strategy outperforms momentum strategy by generating significantly higher returns.

Institutional trading during a wave of corporate scandals: “Perfect Payday”?

This paper examines the role of institutional trading during the option backdating scandal of 2006–2007. Unlike their inability to anticipate other corporate events, institutional investors as a group display negative abnormal trading imbalances (i.e., buy minus sell volumes) in anticipation of firm-specific backdating exposures. Consistent with informed trading, the underlying trades earn positive abnormal short- and long-term profits. Moreover, the negative abnormal imbalances are larger in magnitude when backdating is likely a more severe issue. Local institutions, in particular, display negative trading imbalances earlier in event-time and earn consistently higher trading profits than non-local institutions. Although we find some evidence of over-reaction following the arrival of information about the backdating scandal, these patterns are short-lived and exclusively due to the activity of non-local institutions. Overall, institutional investors behave as informed investors, particularly in local stocks, during this prolonged period of heightened uncertainty about corporate reporting and governance practices.

Asymmetric effects of sell-side analyst optimism and broker market share by clientele

This paper provides evidence for the first time on how different broker clienteles react to earnings forecast and stock recommendations. Greater trade volume is found to be associated with optimistic earnings forecasts while stock recommendations are stronger for analysts affiliated with retail brokerage firms than those affiliated with institutional brokerage firms. We also find that the market share of buy volume (that is, volume from buy orders) substantially rises on recommendation upgrades while the market share of sell volume rises on recommendation downgrades, and that this effect is stronger for retail clientele.

Are institutions informed about news?

This paper combines daily buy and sell institutional trading volume with all news announcements from Reuters. Using institutional order flow (buy volume minus sell volume) we find a variety of evidence that institutions are informed. Institutional trading volume predicts the occurrence of news announcements. Institutional order flow predicts (i) the sentiment of the news; (ii) the stock market reaction on news announcement days; (iii) the stock market reaction on crisis news days; and (iv) earnings announcement surprises. These results suggest that significant price discovery related to news stories occurs through institutional trading prior to the news announcement date.

Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments

We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility

Are Institutions Informed About News?

This paper combines daily non-public data on buy and sell volume by institutions from 2003 through 2005 for NYSE-listed stocks with all news announcements from Reuters. Natural language processing categorizes the sentiment associated with each news story. We use institutional order flow (buy volume minus sell volume) as a quantitative measure of net trading by institutions. We find evidence that institutional investors are informed: i) institutional trading volume predicts the occurrence of news announcements; ii) institutional order flow predicts the sentiment of the news; iii) institutional order flow predicts the stock market reaction on news announcement days; iv) institutional order flow predicts the stock market reaction on crisis news days; v) institutional order flow predicts earnings announcement surprises; and vi) institutions do not believe the hype.

The Flash Crash: Trading Aggressiveness, Liquidity Supply, and the Impact of Intermarket Sweep Orders

AbstractDuring the Flash Crash on May 6, 2010, a short period of high stock market volatility, some stock prices declined to $0.01, while others increased to $100,000. Examining Intermarket Sweep Orders (ISOs) before, on, and after May 6, we find that ISO use is substantially higher on May 6. For those stocks whose prices fell the most, over 65% of the sell volume comes from ISOs. During the price recovery period for these stocks, about 53% of the buy volume comes from ISOs. We believe that the unusual behavior of ISOs contributed to the sudden drop and recovery of the market.

A Theoretical Model of Directional Volume on Acquirer Stock in Cash Mergers

The acquisition of a target firm in a transaction financed by cash is a cash merger. Announcements of cash mergers release the positive signal that the acquirer possesses cash reserves. As stock prices rise, informed traders may obtain abnormal returns by purchasing call options, selling put options or purchasing stock. This paper constructs a theoretical model in which call buy volume forms the upper bound of the final stock price, put sell volume forms the lower bound of the final stock price and stock purchase volume reveals the final stock price.

Trading Volume Around Firm-Specific Announcements

This study investigates the impact of timing of the release of firm-specific announcements on trading volume of individual and institutional investors. We use trading data in five-minute intervals to capture the immediate impact of announcements on the trading volume. We find that individual investors exhibit positive and significant abnormal volume prior to, issued capital announcements and after earnings announcements. However, institutions exhibit significant and positive abnormal volume prior to, and after earnings, periodic and issued capital announcements. Notably, both individual and institutional investors do not exhibit significant abnormal volume prior to, and after dividend announcements. Furthermore, individual (institutional) investors’ buy (sell) volume is significantly higher than sell (buy) volume prior to, and after scheduled and unscheduled announcements. Our results suggest that timing of the release of firm-specific announcements influences investor trading volume.