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Trade size, order imbalance, and the volatility–volume relation

Authors
Journal
Journal of Financial Economics
0304-405X
Publisher
Elsevier
Publication Date
Volume
57
Issue
2
Identifiers
DOI: 10.1016/s0304-405x(00)00057-x
Keywords
  • Volume–Volatility Relation
  • Number Of Trades
  • Size Of Trades
  • Order Imbalance
  • Soes

Abstract

Abstract This paper examines the roles of the number of trades, size of trades, and order imbalance (buyer- versus seller-initiated trades) in explaining the volatility–volume relation for a sample of NYSE and Nasdaq stocks. Our results reconfirm the significance of the size of trades, beyond that of the number of trades, in the volatility–volume relation on both markets. After controlling for the return impact of order imbalance, the volatility–volume relation becomes much weaker. For NYSE stocks, the order imbalance in large trade size categories affects the return more than in smaller size categories. For Nasdaq stocks, the largest return impact comes from the order imbalance in maximum-sized Small Order Execution System (SOES) trades.

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