Volume and volatility in the stock market

Abstract

In recent years, intraday trading has become an important area of research in finance. After the stock market crash in October 1987, investors became concerned with market volatility and wanted to know how to predict and manage it. Many studies have been conducted to analyze the trends and relationships that exist in intraday trading data. Two of the most important characteristics of this data are the volatility of stock prices and the volume of shares traded at different times of the day and between different weekdays. Most analysts agree that trading volume follows a U-shaped curve, that is trading is heavier at the beginning and end of the day and lighter during the middle of the day, but debate whether the same is true for the business week. It is also likely that trading volume is higher when stock prices are more volatile and transaction costs are lower when volume is higher. Another interesting area of research is in after hours and overnight trading, especially with the New York Stock Exchange's decision to extend its trading hours. Without a doubt, the study of intraday trading is crucial in today's market and in the future of stock trading. Some important issues to address regarding volume and volatility in intraday and interday trading data include: reasons why trading is concentrated at different times during the day; reasons why prices are more volatile at some times and less volatile at others; and reasons why higher trading volume seems to lead to higher price volatility.