Premium
Liquidity, Information, and Infrequently Traded Stocks
Author(s) -
EASLEY DAVID,
KIEFER NICHOLAS M.,
O'HARA MAUREEN,
PAPERMAN JOSEPH B.
Publication year - 1996
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.1540-6261.1996.tb04074.x
Subject(s) - decile , market liquidity , business , financial economics , stock exchange , empirical evidence , stock (firearms) , sample (material) , econometrics , economics , finance , geography , statistics , philosophy , chemistry , mathematics , archaeology , epistemology , chromatography
This article investigates whether differences in information‐based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information‐based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume‐decile stocks. Our most important empirical result is that the probability of information‐based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information‐based trading on spreads.