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Heterogeneity of Trading Information and the Price-Volume Relationship: Theory and Evidence

Author

Listed:
  • Hsinan Hsu
  • Tsung-Che Wu
  • Grace Shu-hsing Wu
  • Ya-Hui Chang

Abstract

The purpose of this paper is to propose a new theory regarding the heterogeneity of trading information and price-volume relationship. Basically, the heterogeneity of trading information influences the market demand and supply curves of a stock (or equity index), which in turn affects the price–volume relationship for that stock (or index). This theoretical framework helps resolve existing issues regarding price–volume relationships for equities. For example, empirical experience demonstrates that stock price reversals from tops or rebounds from bottoms are often accompanied with extremely large trading volume; however, an abnormal large volume is not always, but more likely, to lead a price reversal (or rebound). This is due to the greatest extent of heterogeneity of trading information among traders at the time of price reversals (or rebounds). Empirically, this investigation focuses on the price–volume relationship surrounding stock price reversals (or rebounds), which clarify the role of information. The results strongly support the proposed framework.

Suggested Citation

  • Hsinan Hsu & Tsung-Che Wu & Grace Shu-hsing Wu & Ya-Hui Chang, 2016. "Heterogeneity of Trading Information and the Price-Volume Relationship: Theory and Evidence," Accounting and Finance Research, Sciedu Press, vol. 5(1), pages 232-232, February.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:1:p:232
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    References listed on IDEAS

    as
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    3. Kerry Back & C. Henry Cao & Gregory A. Willard, 2000. "Imperfect Competition among Informed Traders," Journal of Finance, American Finance Association, vol. 55(5), pages 2117-2155, October.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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