Title

Daily Return Volatility, Bid-Ask Spreads and Information Flow: Analyzing the Information Content of Volume

Publication Type

Journal Article

Publication Date

2006

Abstract

This paper examines the relationship among daily information flow, return volatility, and bid-ask spreads based on the framework of the mixture of distribution hypothesis (MDH). The MDH model is modified to permit separate effects of informed and liquidity trading volume on return volatility. The results show that the positive relationship between volatility and volume is primarily driven by the informed component of trading. When we control for the information flow, volatility is negatively related to trading volume. Furthermore, bid-ask spreads are positively related to the intensity of information flow. [PUBLICATION ABSTRACT]

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Business

Volume

79

Issue

5

First Page

2697

Last Page

2740

ISSN

0021-9398

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