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Recent trends in trading activity and market quality

journal contribution
posted on 2011-08-01, 00:00 authored by Tarun ChordiaTarun Chordia, R Roll, A Subrahmanyam
We explore the sharp uptrend in recent trading activity and accompanying changes in market efficiency. Higher turnover has been associated with more frequent smaller trades, which have progressively formed a larger fraction of trading volume over time. Evidence indicates that secular decreases in trading costs have influenced the turnover trend. Turnover has increased the most for stocks with the greatest level of institutional holdings, suggesting professional investing as a key contributor to the turnover trend. Variance ratio tests suggest that more institutional trading has increased information-based trading. Intraday volatility has decreased and prices conform more closely to random walk in recent years. The sensitivity of turnover to past returns has increased and cross-sectional predictability of returns has decreased significantly, revealing a more widespread use of quantitative trading strategies that allow for more efficient securities prices.

History

Journal

Journal of Financial Economics

Volume

101

Pagination

243-263

Location

Amsterdam, The Netherlands

ISSN

0304-405X

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2011, Elsevier

Issue

2

Publisher

Elsevier