Asymmetric information and the distribution of trading volume

Matthijs Lof*, Jos van Bommel

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)
120 Downloads (Pure)

Abstract

We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and simple measure of information asymmetry in security markets. We use a microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we obtain VCV from daily observations of trading volume and provide extensive evidence supporting the hypothesis that VCV indicates information asymmetry, by studying return reversals, institutional ownership, and extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements and other information disclosures.

Original languageEnglish
Article number102464
Number of pages20
JournalJOURNAL OF CORPORATE FINANCE
Volume82
Early online date26 Jul 2023
DOIs
Publication statusPublished - Oct 2023
MoE publication typeA1 Journal article-refereed

Keywords

  • Information asymmetry
  • Informed trading
  • Trading volume
  • VCV

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