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Trading Volume, Information Asymmetry, and Timing Information
Author(s) -
CHAE JOON
Publication year - 2005
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.1540-6261.2005.00734.x
Subject(s) - information asymmetry , volume (thermodynamics) , private information retrieval , asymmetry , order (exchange) , high frequency trading , business , contrast (vision) , financial economics , economics , econometrics , algorithmic trading , monetary economics , computer science , finance , computer security , physics , quantum mechanics , artificial intelligence
This paper investigates trading volume before scheduled and unscheduled corporate announcements to explore how traders respond to private information. I show that cumulative trading volume decreases inversely to information asymmetry prior to scheduled announcements, while the opposite relation holds for volume after the announcement. In contrast, trading volume before unscheduled announcements increases dramatically and shows little relation to proxies for information asymmetry. I investigate the behavior of market makers and find that they act appropriately by increasing price sensitivity before all announcements, implying that they extract timing information from their order books.