THE FUNDAMENTAL DETERMINANTS OF TRADING VOLUME REACTION TO FINANCIAL INFORMATION: EVIDENCE AND IMPLICATIONS FOR EMPIRICAL CAPITAL MARKET RESEARCH

Prior empirical research indicates that trading volume reaction to new information increases with the heterogeneity of investors’ prior beliefs. We examine three potential factors that theoretical models of financial economists show determine trading volume reaction to new information: heterogeneous...

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Bibliographic Details
Published in:The Journal of financial research 2011-03, Vol.34 (1), p.61-101
Main Authors: Atiase, Rowland K., Ajinkya, Bipin B., Dontoh, Alex K., Gift, Michael J.
Format: Article
Language:English
Subjects:
Capital markets
D84
G10
G14
M41
Securities trading volume
Sensitivity analysis
Signaling
Studies
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Summary:Prior empirical research indicates that trading volume reaction to new information increases with the heterogeneity of investors’ prior beliefs. We examine three potential factors that theoretical models of financial economists show determine trading volume reaction to new information: heterogeneous prior beliefs, differential interpretation, and the consensus effect—the extent to which the information causes their beliefs to converge or diverge. We find that these three factors have a distinct and significant incremental effect on trading volume, thereby suggesting that empirical trading volume models that exclude or fail to control for any of these determinants are misspecified with biased estimated coefficients.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.2010.01285.x