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Market Statistics and Technical Analysis: The Role of Volume
Author(s) -
BLUME LAWRENCE,
EASLEY DAVID,
O'HARA MAUREEN
Publication year - 1994
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1994.tb04424.x
Subject(s) - statistic , volume (thermodynamics) , technical analysis , econometrics , aggregate (composite) , quality (philosophy) , economics , process (computing) , computer science , statistics , microeconomics , financial economics , mathematics , philosophy , physics , materials science , epistemology , quantum mechanics , composite material , operating system
ABSTRACT We investigate the informational role of volume and its applicability for technical analysis. We develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. We show that volume provides information on information quality that cannot be deduced from the price statistic. We show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. We also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis thus arises as a natural component of the agents' learning process.