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Trading Volume, Information Asymmetry, and Timing Information



    1. 1The State University of New York at Buffalo
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    • Joon Chae is at The State University of New York at Buffalo. I would like to thank Richard C. Green (editor) and two anonymous referees for their comments. I thank Ken French, S.P. Kothari, Jonathan Lewellen, Andrew Lo, Dimitri Vayanos, Jiang Wang, and Batterymarch workshop participants at MIT for helpful comments and suggestions. I also thank participants in the following seminars: INSEAD, Lehman Brothers, National University of Singapore, Penn State University, University at Buffalo, and University of Hawaii at Manoa. I also thank Albert Wang for detailed suggestions that greatly improved the exposition.


This paper investigates trading volume before scheduled and unscheduled corporate announcements to explore how traders respond to private information. I show that cumulative trading volume decreases inversely to information asymmetry prior to scheduled announcements, while the opposite relation holds for volume after the announcement. In contrast, trading volume before unscheduled announcements increases dramatically and shows little relation to proxies for information asymmetry. I investigate the behavior of market makers and find that they act appropriately by increasing price sensitivity before all announcements, implying that they extract timing information from their order books.

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