Reference

Jos Van Bommel (University of Luxembourg), “Asymmetric Information and the Distribution of Trading Volume”, Fédération des Banques Françaises Seminar, TSE, November 12, 2018, 12:30–14:00, room MF 323.

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 easily computable 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 find that firm-year observations of VCV, computed from daily trading volumes, are correlated with extant firm-level measures of asymmetric information in the crosssection of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements.