Transactions, Volume, and Volatility

We show that the positive volatility-volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions. Thus, it is the occurrence of transactions per se, and not their size, that generates volatility; trade size has no infor...

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Bibliographic Details
Published in:The Review of financial studies 1994-01, Vol.7 (4), p.631-651
Main Authors: Jones, Charles M., Kaul, Gautam, Lipson, Marc L.
Format: Article
Language:English
Subjects:
Arithmetic mean
Competition
Estimators
Financial securities
Information content
Price volatility
Prices
Regression coefficients
Security portfolios
Security prices
Stock prices
Trade
Trade volume
Volatility
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Summary:We show that the positive volatility-volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions. Thus, it is the occurrence of transactions per se, and not their size, that generates volatility; trade size has no information beyond that contained in the frequency of transactions. Our results suggest that theoretical research needs to entertain scenarios in which (i) both the frequency and size of trades are endogenously determined, yet (ii) the size of trades has no information content beyond that contained in the number of transactions.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/7.4.631