← Search

Journal of Financial Economics Vol. 101 No. 2 2011

Recent trends in trading activity and market quality

Tarun Chordia1,2,3,4,5,6,7,8; Richard Roll1,2,3,4,5,6,7,8; Avanidhar Subrahmanyam1,2,3,4,5,6,7,8

1 Rutgers, The State University of New Jersey · 2 Texas Tech University · 3 Emory University · 4 University of California, Los Angeles · 5 University of New Orleans · 6 Cornell University · 7 McGill University · 8 New York University

Abstract

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.

DOI
10.1016/j.jfineco.2011.03.008
Volume
101
Issue
2
Pages
243-263
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite