The authors investigate the informational role of volume and its applicability for technical analysis. They develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. The authors show that volume provides information on information quality that cannot be deduced from the price statistic. They show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. The authors also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis, thus, arises as a natural component of the agents' learning process.

Two of the most important refinements of the Nash equilibrium concept for extensive form games are (trembling hand) perfect equilibrium and sequential equilibrium. It is shown here that, for almost all assignments of payoffs to outcomes, the sets of sequential and perfect equilibrium strategy profiles are identical. This result is obtained by exploiting the semialgebraic nature of equilibrium correspondences, following from a deep theorem of mathematical logic. Copyright 1994 by The Econometric Society.

ABSTRACT We investigate the informational role of volume and its applicability for technical analysis. We develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. We show that volume provides information on information quality that cannot be deduced from the price statistic. We show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. We also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis thus arises as a natural component of the agents' learning process.