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Journal of Finance Vol. 48 No. 1 1993

Variations in Trading Volume, Return Volatility, and Trading Costs: Evidence on Recent Price Formation Models

F. Douglas Foster; Siva Viswanathan1,2

1 The Fuqua School of Business, Duke University. Detailed comments by an anonymous referee, Tom Smith, René Stulz (the editor), and Robert Whaley substantially improved the paper. We also want to thank Campbell Harvey, David Hsieh, Nancy Keeshan, Fred Lindahl, Kevin McCardle, Mike Moore, Paul Pfleide · 2 The Fuqua School of Business, Duke University. Detailed comments by an anonymous referee, Tom Smith, René Stulz (the editor), and Robert Whaley substantially improved the paper. We also want to thank Campbell Harvey, David Hsieh, Nancy Keeshan, Fred Lindahl, Kevin McCardle, Mike Moore, Paul Pfleider

Abstract

Patterns in stock market trading volume, trading costs, and return volatility are examined using New York Stock Exchange data from 1988. Intraday test results indicate that, for actively traded firms trading volume, adverse selection costs, and return volatility are higher in the first half‐hour of the day. This evidence is inconsistent with the Admati and Pfleiderer (1988) model which predicts that trading costs are low when volume and return volatility are high. Interday test results show that, for actively traded firms, trading volume is low and adverse selection costs are high on Monday, which is consistent with the predictions of the Foster and Viswanathan (1990) model.

DOI
10.1111/j.1540-6261.1993.tb04706.x
Volume
48
Issue
1
Pages
187-211
Language
en
Sources
openalex crossref

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