Total Trading Volume Research Articles

Open interest, volume, and volatility: evidence from Taiwan futures markets

This paper examines the relationships amongst volatility, total trading volume (TVOL) and total open interest (TOI) for three Taiwan stock index futures markets as well as the role of the latter two variables in the dynamics of GARCH modeling and forecasting. From both ex-post and ex-ante perspectives, we study this issue by using the VAR model and augmented GARCH-type models, respectively. For the GARCH-type models, we employ both symmetric and asymmetric models augmented with lagged logs in TOI and/or TVOL. We find that whether addition of these two variables helps the basic GARCH models predict future volatility depends upon the sample period examined for all three sets of futures. Nonetheless, the best three models for out-of-sample volatility forecasting in the MSE sense are generally the augmented models for all sub-intervals and all three futures contracts.

Need for Economic Integration of South Asia

Though South Asia covers 4,488,300 sq kms of the world's surface area with a population of 1.5 billion, still it has only a negligible share of the world's total volume of trade. Most of the people of this region are living below the poverty line. Only mutual initiatives towards economic integration can play a vital role in upgrading the standards of living of the poor people.Economic integration in general is a process of removing progressively the discriminations which occur at the national borders. Such discrimination may affect the flow of goods and services and the movement of factors of production either directly or through economic activity via the factor of production. Academicians have predicted two opposite outcomes, both positive and negative. Negative effects include the possibility that the infant industrial sector may not survive the open market competition or that the sick industries might face ruin. On the other hand, positive effects in the short-run include inland 'trade-creation effects.' But that must outweigh trade diversion effects in order to achieve beneficial trade liberalization. However, apart from short-run benefits, there are also the long-run benefits such as greater technical efficiency due to greater competition, larger markets, higher consumer surpluses, and more foreign investments. There are five main stages of regional integration such as free trade areas, customs unions, common market, economic union and total economic integration. Such stages are the outcome of policy decisions taken by regional inter-governmental forum and/or supranational institutions in order to affect the depth and breadth of regional integration.

Autocorrelation in Daily Short-Sale Volume

This study finds evidence of autocorrelation in daily short-sale volume. The degree of autocorrelation in short volume, however, is not driven by illiquid stocks or stocks that face short-sale constraints. Contrary to prior research that suggests that autocorrelation in total trade volume is explained by the flow of information into prices, our tests show that the information contained in short sales is decreasing in the level of autocorrelation. Further, we do not find that short sellers engage in stealth trading strategies indicating that stealth trading activity is not a necessary condition for the presence of autocorrelation in trading volume.

The Market Liquidity Impact of Open Market Share Repurchases

We examine the market liquidity impact of open market share repurchases in a computerized order driven market. Using a detailed dataset of daily repurchase transactions on the Stockholm Stock Exchange together with intraday data on bid-ask spreads and order depths enable us to examine liquidity effects on the actual repurchase days. Overall, we find that repurchase trades inside the order driven trading system contributes to market liquidity through narrower bid-ask spreads and deeper market depths. After controlling for total trading volume, price, and volatility we still find a significant decrease of the bid-ask spread on repurchase days relative to surrounding non-repurchase days. However, repurchases executed as block trades outside the order driven trading system have a detrimental effect on the bid-ask spread, consistent with a negative response to the presence of informed managerial trading.

Development of Small Business Sector in Slovakia in 1993-2006

Development of Small Business Sector in Slovakia in 1993-2006The main focus of the article is to elaborate on the importance and role of small and medium-sized enterprises in the Slovak economy. The authors show the development tendencies of the SME sector in Slovakia in the years of 1993-2006. Where it was possible the authors enumerated the data for the year 2007. The paper analyses the state of the sector of small and medium-sized enterprises, seeking to understand the causes of its relative strength and weakness. The share of the SME sector in all the registered enterprises in Slovakia is convergent with the whole EU average and it amounts to 99.8%. In Slovakia the share of microenterprises amounts to 79.3% which is the lowest feature in the EU. It means that the situation in Slovakia seems to be better for the economy, as the microenterprises do not have significant impact on the national employment and the GDP. In Slovakia the share of SMEs in total employment is crucial and amounts to 61.2%. A present-day share of the SME sector in both export and import volumes is more than 1/3 of the total volume of foreign trade of Slovakia.

There's more to volatility than volume

It is widely believed that fluctuations in transaction volume, as reflected in the number of transactions and to a lesser extent their size, are the main cause of clustered volatility. Under this view bursts of rapid or slow price diffusion reflect bursts of frequent or less frequent trading, which cause both clustered volatility and heavy tails in price returns. We investigate this hypothesis using tick by tick data from the New York and London Stock Exchanges and show that only a small fraction of volatility fluctuations are explained in this manner. Clustered volatility is still very strong even if price changes are recorded on intervals in which the total transaction volume or number of transactions is held constant. In addition the distribution of price returns conditioned on volume or transaction frequency being held constant is similar to that in real time, making it clear that neither of these are the principal cause of heavy tails in price returns. We analyse recent results of Ane and Geman (2000: J. Finance, 55, 2259–2284) and Gabaix et al. (2003: Nature, 423, 267–270), and discuss the reasons why their conclusions differ from ours. Based on a cross-sectional analysis we show that the long-memory of volatility is dominated by factors other than transaction frequency or total trading volume.

Where is the Market? Evidence from Cross-Listings in the U.S.

We explore two main questions. First, can two markets for a company's shares coexist and, if so, what determines the distribution of trading volume across them? For firms cross-listed in the U.S. we find that in most cases the U.S. market attracts a significant fraction of total trading volume, and tends to be more active when the company is based in a country that is geographically close, has low financial development and relatively poor anti-insider trading protection. Moreover, the relative size of the U.S. market is larger if the company is small, volatile and high-tech. Second, we ask whether developing an active foreign market entails lower domestic trading activity. We find that for firms based in developed markets, the domestic turnover rate increases in the wake of cross-listing and remains permanently higher. In contrast, emerging market firms tend to experience a decrease in domestic trading activity.

Institutional Investor Participation and Stock Market Anomalies

This paper investigates the impact of institutional trading volume on stock market anomalies. I construct a measure that evaluates the percentage of total trading volume of a stock accounted for by institutional trades. Using a large sample of firms from 1980–2005, I find strong evidence that the strength of stock market anomalies such as price momentum, post-earnings announcement drift, the value premium, and the investment anomaly is decreasing in institutional trading volume. Additionally, the effects of institutional trading volume are stronger than those of institutional ownership, the major measure of institutional investor participation in the finance literature. These findings suggest that institutional trading significantly improves stock price efficiency.

An examination of large sell orders in cold IPO aftermarkets

It is well-known that investment banks routinely take large naked short positions for low demand IPOs, and for such cold IPOs, the immediate sale of initial allocations back to the market accounts for a relatively large proportion of total trading volume. In this paper, we investigate the relationship between investment banks and institutional investors during the stabilization period. Specifically, we hypothesize that lead underwriters cover their short positions through selective share buy-back from institutional investors at the offer price. Using trade data, we examine the trading patterns of large (institutional) and small (retail) trades during the stabilization period. We find that a large proportion of institutional sells take place at the offer price, while a large proportion of retail sells take place below the offer price in a cold IPO stabilization period. We then estimate the information content of all trades to determine whether seller-initiated trades from institutional investors are correctly anticipated by the investment bank in an effort to cover their short position. If they are anticipated, these trades would carry little to no new information. Indeed, we find that the information content of large sell orders in cold IPO aftermarkets is lower than the information content of small trades, and is the least compared to several control samples. The results are robust and survive controls for external factors such as volume, turnover, and volatility. These results suggest that lead underwriters allow their valuable buy-side clients to sell back cold IPO allocations at the offer price.

Does Information Drive Trading in Option Strategies?

We study trading in option strategies such as straddles, strangles, vertical and horizontal spreads using a unique sample of all trades in individual options and option strategies on the FTSE-100 index. In our sample, trades in option strategies represent around 38% of the total number of trades and over 80% of the total trading volume. Consistent with at least some traders using option strategies to speculate on the future direction and volatility of the index we observe more active trading in strategies in weeks with high index volatility and in weeks with macro announcements. We report evidence consistent with trading in option strategies containing some non-public information. On average, the at-the-money implied volatility increases by approximately 40 basis points over a period of five days before to five days after buyer-initiated trades in option strategies that are long volatility. We also report evidence that the market conditions prevailing when strategy trades are initiated vary systematically. Bull spreads tend to be both bought and sold more actively following positive market returns whereas bear spread are both bought and sold in markets with negative returns. Both strategies tend to be most actively traded in high volatility periods.

The Ottoman Administration of the Spice Trade in the Sixteenth-century Red Sea and Persian Gulf

AbstractFollowing the Ottoman conquest of Egypt and the Levant in 1516-17, administrators of the empire began to experiment with several innovative strategies to increase the total volume of the spice trade between the Indian Ocean and the Mediterranean, and to maximize the state's share of its revenues. These became progressively more sophisticated over time, until by the end of the 1560s a comprehensive infrastructure was in place, including a rationalized empire-wide tax regime for regulating private trade, a network of "imperial factors" who bought spices for the sultan in overseas emporiums, and an annual convoy of spice galleys that shipped cargoes of state-owned pepper from the Yemen to the markets of Egypt and Istanbul. All of this, combined with natural advantages of geography and the goodwill of Muslim traders in the Indian Ocean, enabled the Ottomans to mount a formidable challenge to the "pepper monopoly" of the Portuguese Estado da India. À la suite de la conquête ottomane de l'Égypte et du Levant en 1516-17, les administrateurs de l'empire commencèrent à mettre en application diverses stratégies novatrices dans le but d'augmenter le volume total du commerce des épices entre l'océan Indien et la Méditerranée et de maximiser la part de l'État dans ses revenus. Ces stratégies se perfectionnèrent avec le temps et vers la fin des années 1560 une infrastructure complète était en place, incluant un régime fiscal repensé à l'échelle de l'empire afin de réglementer le commerce privé, un réseau de "facteurs impériaux" achetant des épices pour le compte du sultan dans les comptoirs d'outremer et un convoi annuel de galères transportant du Yémen aux marchés de l'Égypte et d'Istanbul des cargaisons de poivre appartenant à l'État. Grâce à tous ces éléments, de même qu'à leurs avantages géographiques naturels et à la disposition favorable des marchands musulmans dans l'océan Indien, les Ottomans purent présenter un défi de taille au "monopole sur le poivre" de l'Estado da India portugais.

Potential impacts of the proposed West African monetary zone on cowpea trade

AbstractMember countries of the Economic Community of West African States (ECOWAS) are expected to form a West African Monetary Zone (WAMZ) by December 2009, whereby members would use a common currency in an attempt to promote regional integration. Evidence suggests that reduction in transaction cost as a result of a decrease (or elimination) of nontariff barriers (NTBs) and real interest rates in response to elimination of exchange rate differentials positively influence trade. The objective of this study is to quantify the effects of (a) a 7% real interest rate on capital and (b) zero NTBs within ECOWAS countries, on cowpea (Vigna unguiculata (L.) Walp) trade to provide a measure of the potential impacts of the WAMZ on grain trade. The study applies a spatial and temporal price equilibrium model formulated in a mixed complementary programming (MCP) framework and solved using GAMS/PATH. The focus is on the Nigerian cowpea grainshed (NCG) comprising Benin, Burkina Faso, Côte d'Ivoire, Ghana, Mali, Niger, Nigeria, and Togo in ECOWAS, and Cameroon, Chad, and Gabon in the Central African Economic and Monetary Community (CAEMC). The results show that if WAMZ results in reduced real interest rates within ECOWAS, the larger of the two monetary unions, consumers in the relatively larger coastal economies and producers in the smaller Sahelian economies would benefit while all others lose. However, net social welfare would increase by 0.19% over the base case of 6.3 billion US$ (bUS$). Removing NTBs among countries in the larger trading bloc may alter the pattern of cowpea flows with total trade volume increasing by 3%, but inter‐bloc trade decreasing by about 8%. The net total regional social welfare would increase by 0.14%, or 15 million US$ (mUS$), benefiting only consumers in importing countries and producers in exporting countries. The results emphasize the importance of specialization based on regional comparative advantage, but also draw attention to the need to devise ways to ensure acceptable welfare distribution among producers and consumers in line with policy objectives of the individual countries within the proposed WAMZ. Finally, this article contributes to the literature on the application of spatial and temporal models incorporating both ad valorem tariffs and differential interest rates in developing economies.

There's More to Volatility than Volume

It is widely believed that fluctuations in transaction volume, as reflected in the number of transactions and to a lesser extent their size, are the main cause of clustered volatility. Under this view bursts of rapid or slow price diffusion reflect bursts of frequent or less frequent trading, which cause both clustered volatility and heavy tails in price returns. We investigate this hypothesis using tick by tick data from the New York and London Stock Exchanges and show that only a small fraction of volatility fluctuations are explained in this manner. Clustered volatility is still very strong even if price changes are recorded on intervals in which the total transaction volume or number of transactions is held constant. In addition the distribution of price returns conditioned on volume or transaction frequency being held constant is similar to that in real time, making it clear that neither of these are the principal cause of heavy tails in price returns. We analyze recent results of Ane and Geman (2000) and Gabaix et al. (2003), and discuss the reasons why their conclusions differ from ours. Based on a cross-sectional analysis we show that the long-memory of volatility is dominated by factors other than transaction frequency or total trading volume.

Trading Styles and Trading Volume

Many investors in equity markets follow trading styles based on stock characteristics like firm size or momentum. Because stocks' characteristics change over time, style investors must rebalance their portfolios to avoid style drift. In this paper, I analyze how the rebalancing trades of style traders affect the cross-section of trading volume. Specifically, I estimate, using mutual fund stock holdings data, how the propensity to sell a stock depends on recent changes in stock characteristics. It turns out to be most strongly related to changes in firm size, value, and momentum characteristics. The fitted values of the propensity-to-sell model explain a significant portion of the cross-sectional variation in total trading volume, controlling for other determinants of volume and using instrumental variables to deal with the endogeneity of stock characteristics. The results suggest that style investing is an important source of trading volume.

Sustaining trade with Saudi Arabia: an analysis of exporting as an alternative

Over the past decade, world trade has almost doubled from $7 trillion to more than $13 trillion, and Saudi Arabia is by far the largest trading country in the Middle Eastern region, with total trade volume in excess of $102 billion. This paper reviews the economic structure of Saudi Arabia. While Saudi Arabia has been one of the fastest growing nations in the region, it has been only since 2000 that the Kingdom has made efforts to become globally integrated. The paper discusses exports to Saudi Arabia as an appropriate entry strategy and elaborates on both challenges and opportunities for exporting companies to sustain business in this lucrative market. This paper reviews economic and market perspectives of the Saudi marketplace. It discusses important considerations for formulating guidelines for exports of goods and services to Saudi Arabia. Finally, this paper proposes a set of key strategies to enable exporting companies to enter and sustain business in Saudi Arabia.

Optimal Liquidity Trading*

A liquidity trader wishes to trade a fixed number of shares within a certain time horizon and to minimize the mean and variance of the costs of trading. Explicit formulas for the optimal trading strategies show that risk-averse liquidity traders reduce their order sizes over time and execute a higher fraction of their total trading volume in early periods when price volatility or liquidity increases. In the presence of transaction fees, traders want to trade less often when either price volatility or liquidity goes up or when the speed of price reversion declines. In the multi-asset case, price effects across assets have a substantial impact on trading behavior.

TRADE AND WAGE INEQUALITY: THE HONG KONG CASE

Abstract. This paper examines the effects of Hong Kong–mainland China trade on the wage inequality in Hong Kong. Because of the large volume of trade and the large income disparity between these two regions, this empirical study provides a good test of the theories on North–South trade. The econometric analyses show that the relative wage between the skilled and unskilled workers in Hong Kong increased as the share of the volume of Hong Kong's trade with mainland China in Hong Kong's total trade volume rose.

Strategic Trading with Naive Noise Traders

We investigate a dynamic model of speculative trading in which a naive noise trader is born each period who uses a simple strategy, whereas a rational informed investor maximizes her profits by strategically exploiting the successive noise trading over time. The model shows that the two types of traders will soon hold opposite views on whether the current price is high or low relative to its fundamental value. The informed trader simultaneously submits an “information trade” to exploit asymmetric information and an “arbitrage trade” to exploit heterogeneous beliefs between the two types every period. The heterogeneous beliefs render a unique source of liquidity, thus magnifying informed profits and the total trading volume. It is shown that a monopolistic informed trader may ride on noise trading in early periods to push the price away from its fundamental value, only to reap greater profits by her later arbitrage trades. Such strategic behavior in arbitrage, however, disappears under imperfect competition. Unlike previous models with exogenous noise (liquidity) trading, our model with endogenous noise trading can better explain the high trading volume phenomenon and the familiar U-shaped pattern in intraday transaction costs and price volatility.

Intra-Industry Trade And Strategic Trade Police In The Presence of Public Firms

The literature on intra-industry trade and strategic trade policy has always considered only profit-maximizing private firms being active in international trade. This paper incorporates state-owned public firms in the context of intra-industry trade. The existence of welfare-maximizing public firms significantly affects intra-industry trade and strategic trade policy. Compared to when both firms are private, the existence of public firms lowers optimal tariffs and subsidies, but also lowers the total volume of trade between the two countries. The lower volume of trade, however, does not translate into lower levels of welfare for the trading countries. [F12, F13, D43, L32]

Insider Trading When an Underlying Option Is Present

We argue that increased leverage, lower litigation risk, and reduced trading costs in the options market result in lower incentives for informed market participants to trade in stocks that have options listed than in stocks without traded options. We also hypothesize that the underlying market for optioned stocks is informationally more efficient than that for nonoptioned stocks. Our cross-sectional tests of U.S. market data show that the level of insider trading is significantly lower, as a percentage of total trading volume, for optioned stocks than for nonoptioned stocks during months when insider trading is intense. When we compare the magnitude of stock price adjustments to insider trades, our results indicate that the price reaction to insider trading events is less pronounced for optioned stocks. Both pieces of evidence are consistent with the view that informed trading is less likely to occur and its price effect is better anticipated in the underlying market for optioned stocks than for nonoptioned stocks.