Volume and volatility in a common-factor mixture of distributions model

Xiaojun He, Raja Velu

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

This paper develops a multi-asset mixture distribution hypothesis model to investigate commonality in stock returns and trading volume. The model makes two main predictions: First, the factor structures of returns and trading volume are independent although they stem from the same valuation fundamentals and jointly depend on a latent information flow; second, cross-sectional positive volatility-volume relations arise solely from the dynamic features of the information flow. Empirical analyses at the market level support these predictions. Furthermore, the results indicate that removing the information flow significantly reduces the return volatility persistence and the extent of the reduction exhibits a size pattern.

Original languageEnglish (US)
Pages (from-to)33-49
Number of pages17
JournalJournal of Financial and Quantitative Analysis
Volume49
Issue number1
DOIs
StatePublished - Feb 2014

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Volume and volatility in a common-factor mixture of distributions model'. Together they form a unique fingerprint.

Cite this