The Information Content of Abnormal Trading Volume

Abstract

This paper investigates the way in which abnormal trading volume reveals new information to market participants. It is generally thought that trading volume is an efficient proxy for information flow and enhances the information set of investors. However, no research has related the presence of abnormal trading volume to firm characteristics, such as ownership and governance structure, which also have a theoretical link to information quality. I find strong excess returns around extreme trading levels, which are only moderately attributable to information disclosure. Moreover, these returns are not caused by liquidity fluctuations since prices do not reverse over the following period. In contrast, there is evidence of price momentum, suggesting that traders can implement successful portfolio strategies based on observation of current volumes. Copyright (c) 2010 Blackwell Publishing Ltd.

Information Content of Insider Trading Volume: Evidence from Sri Lanka

“…Thus, higher trading volume of insider purchases (sales) could be perceived as positive (negative) signals that contains positive (negative) information. Easley and O'Hara (1992) and Bajo (2010) state that traders with unreported information would prefer to trade in large volumes. Glosten and Milgrom (1985) state that the trade imbalance arising in the market due to insiders' purchases or sales could force security prices to reflect the underlying information content of these trades.…”

Accounting Information and Cost of Capital: A Theoretical Approach

“…Cross-sectional leverage studies that focus on the above mentioned contemporaneous relationship find extremely high support for such behaviour ( [26][27][28][29]). Once we get a negative association between leverage and cash flows, Equation (6) predicts that there also exists a negative relationship between cash flows and cost of capital and thus we get a positive association between leverage and cost of capital as [8] find.…”

“…Neglecting such a factor, however, places the concept of market efficiency in serious dispute, a fact that played a prominent role in the recent global financial crisis. According to [6], although theoretical arguments support the view that new accounting information leads to changes not only in firm's stock prices, but also in the traded volume due to the enhanced effect of informed traders, the empirical evidence does not seem supportive to the above argument. [6] finds that excess returns do change upon the arrival of new accounting information, but only if the new information set can impact the trading activity, the firm's ownership characteristics, and the family-firm status.…”

“…be the element of common variation in firm's j cash flows with the market, while the term 2 1 j jd h is considered to be the element of idiosyncratic variation. If we substitute the whole expression into Equation(5), it yields: for R j yields as the Equation(6).According to Equation (6), there are certain factors leading to the reduction of the firm's cost of capital: The decline of the variance in the idiosyncratic variation in firm's cash flows, 1/h j ,  The decline of the variance in the common variation in firm's cash flows with the market, 1/q,  The increase in the shareholder's base of the economy or alternatively the increase in the number of investors who participate in the market, N,  The increase in the risk tolerance of the market, α,…”

Do Investors Trade around Social Rating Announcements?

“…After choosing the event and estimation windows, we define the norm to compute the abnormal measures. Numerous studies show that the constant mean model is robust (see, e.g., Jarrell and Poulsen, and Bajo, ) when estimated with OLS: with μ i the mean Volume for asset i , and .…”