Information, trading, and volatility

We examine the effects of trading and information flows on the short-run behavior of stock prices by comparing the behavior of stock return volatility during trading and nontrading periods. We define nontrading periods as periods when exchanges and businesses are open but traders endogenously choose...

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Bibliographic Details
Published in:Journal of financial economics 1994-08, Vol.36 (1), p.127-154
Main Authors: Jones, Charles M., Kaul, Gautam, Lipson, Marc L.
Format: Article
Language:English
Subjects:
Economic models
Financial analysis
Financial economics
Information
Information management
Market micro-structure
Rates of return
Return volatility
Securities trading
Stock returns
Studies
Trade
Trading
Volatility
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Summary:We examine the effects of trading and information flows on the short-run behavior of stock prices by comparing the behavior of stock return volatility during trading and nontrading periods. We define nontrading periods as periods when exchanges and businesses are open but traders endogenously choose not to trade. After correcting for the bid/ask bounce and stickiness in quotes, we find that a large proportion of daily stock return volatility occurs without trades, especially for large firms. Furthermore, we provide new evidence that public (versus private) information is the major source of short-term return volatility.
ISSN:0304-405X
1879-2774
DOI:10.1016/0304-405X(94)90032-9