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Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory
Abstract
We examine the implications of portfolio theory for the cross-sectional behavior of equity trading volume. Two-fund separation theorems suggest a natural definition for trading activity: share turnover. If two-fund separation holds, share turnover must be identical for all securities. If |$(K + 1)$|-fund separation holds, we show that turnover satisfies an approximately linear |$K$|-factor structure. These implications are examined empirically using individual weekly turnover data for NYSE and AMEX securities from 1962 to 1996. We find strong evidence against two-fund separation, and a principal-components decomposition suggests that turnover is well approximated by a two-factor linear model.
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Cites
Testing the null hypothesis of stationarity against the alternative of a unit root
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992) · Journal of Econometrics · doi:10.1016/0304-4076(92)90104-y · Cited by 12,633
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Market liquidity as a sentiment indicator
Baker, M., & Stein, J. C. (2004) · Journal of Financial Markets · doi:10.1016/j.finmar.2003.11.005 · Cited by 1,244
Does Net Buying Pressure Affect the Shape of Implied Volatility Functions?
Bollen, N. P. B., & Whaley, R. E. (2004) · The Journal of Finance · doi:10.1111/j.1540-6261.2004.00647.x · Cited by 987
Investor Overconfidence and Trading Volume
Statman, M., Thorley, S., & Vorkink, K. (2006) · Review of Financial Studies · doi:10.1093/rfs/hhj032 · Cited by 959
Understanding commonality in liquidity around the world
Karolyi, G. A., Lee, K.-H., & van Dijk, M. A. (2012) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.12.008 · Cited by 720
Does Asymmetric Information Drive Capital Structure Decisions?
Bharath, S. T., Pasquariello, P., & Wu, G. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn076 · Cited by 718
Metadata
- Authors
- Lo, A. W., & Wang, J.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2000-04
- Volume
- 13
- Issue
- 2
- Pages
- 257-300
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2891790148
- Cited by
- 694
- References
- 1
- FWCI
- 32.02
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
