Article
Liquidity, Information, and Infrequently Traded Stocks
ABSTRACT
This article investigates whether differences in information‐based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information‐based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume‐decile stocks. Our most important empirical result is that the probability of information‐based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information‐based trading on spreads.
Citing Literature
Number of times cited according to CrossRef: 710
- Oluwaseun Damilola Ajayi, Omokolade Akinsomi, Empirical Evidence on the Measurement of Information Asymmetry on the Pricing of REITs on the Johannesburg Stock Exchange, The Construction Industry in the Fourth Industrial Revolution, 10.1007/978-3-030-26528-1, (287-296), (2020).
- Tao Chen, Does news affect disagreement in global markets?, Journal of Business Research, 10.1016/j.jbusres.2019.11.082, 109, (174-183), (2020).
- Yang Gao, Kun Zhao, Chao Wang, Chao Liu, The dynamic relationship between Internet Attention and Stock Market Liquidity: A Thermal Optimal Path Method, Physica A: Statistical Mechanics and its Applications, 10.1016/j.physa.2020.124180, (124180), (2020).
- Murat Tiniç, Tanseli Savaser, Political turmoil and the impact of foreign orders on equity prices, Journal of International Financial Markets, Institutions and Money, 10.1016/j.intfin.2020.101174, (101174), (2020).
- Haijun Yang, Hengshun Ge, Ying Luo, The Optimal Bid-Ask Price Strategies of High-Frequency Trading and the Effect on Market Liquidity, Research in International Business and Finance, 10.1016/j.ribaf.2020.101194, (101194), (2020).
- JOEL PERESS, DANIEL SCHMIDT, Glued to the TV: Distracted Noise Traders and Stock Market Liquidity, The Journal of Finance, 10.1111/jofi.12863, 75, 2, (1083-1133), (2020).
- Yee-Ee Chia, Kian-Ping Lim, Kim-Leng Goh, More shareholders, higher liquidity? Evidence from an emerging stock market, Emerging Markets Review, 10.1016/j.ememar.2020.100696, (100696), (2020).
- Barbara Będowska-Sójka, Krzysztof Echaust, What is the best proxy for liquidity in the presence of extreme illiquidity?, Emerging Markets Review, 10.1016/j.ememar.2020.100695, (100695), (2020).
- Akram Khalilov, Beatriz Garcia Osma, Accounting conservatism and the profitability of corporate insiders, Journal of Business Finance & Accounting, 10.1111/jbfa.12438, 47, 3-4, (333-364), (2020).
- Gustavo Grullon, Yamil Kaba, Núñez-Torres Alexander, When low beats high: Riding the sales seasonality premium, Journal of Financial Economics, 10.1016/j.jfineco.2020.06.003, (2020).
- Tadashi Endo, The primary dealer system in lower-income economies, Emerging Markets Review, 10.1016/j.ememar.2020.100715, (100715), (2020).
- Murat Tiniç, Muhammad Sabeeh Iqbal, Syed F. Mahmud, Information cascades, short-selling constraints, and herding in equity markets, Borsa Istanbul Review, 10.1016/j.bir.2020.05.007, (2020).
- Ping Chen Tsai, Shou Huang Dai, Estimating the Proportion of Informed Traders in BTC-USD Market Using Spread and Range, Advanced Studies of Financial Technologies and Cryptocurrency Markets, 10.1007/978-981-15-4498-9, (197-210), (2020).
- Congshan Zhang, Jia Li, Tim Bollerslev, Occupation density estimation for noisy high-frequency data, Journal of Econometrics, 10.1016/j.jeconom.2020.05.013, (2020).
- Barbara Bcedowska-Sojka, Do Aggressive Orders Affect Liquidity? An evidence from an Emerging Market, Research in International Business and Finance, 10.1016/j.ribaf.2020.101307, (101307), (2020).
- Tsung-Chi Cheng, Hung-Neng Lai, Improvements in estimating the probability of informed trading models, Quantitative Finance, 10.1080/14697688.2020.1800805, (1), (2020).
- Priyanka Naik, B. G. Poornima, Y. V. Reddy, Measuring liquidity in Indian stock market: A dimensional perspective, PLOS ONE, 10.1371/journal.pone.0238718, 15, 9, (e0238718), (2020).
- Sturla L. Fjesme, Neal E. Galpin, Lyndon Moore, Rejected stock exchange applicants, Journal of Financial Economics, 10.1016/j.jfineco.2020.08.005, (2020).
- Panagiotis Anagnostidis, Patrice Fontaine, Christos Varsakelis, Are high–frequency traders informed?, Economic Modelling, 10.1016/j.econmod.2020.08.013, 93, (365-383), (2020).
- Paresh Kumar Narayan, Maryam Akbari Nasiri, Understanding corporate debt from the oil market perspective, Energy Economics, 10.1016/j.eneco.2020.104946, (104946), (2020).
- Truong-Giang Nguyen, Stock liquidity and dividend policy: Evidence from an imputation tax environment, International Review of Financial Analysis, 10.1016/j.irfa.2020.101559, (101559), (2020).
- Perdana Wahyu Santosa, Determinants of price reversal in high-frequency trading: empirical evidence from Indonesia, Investment Management and Financial Innovations, 10.21511/imfi.17(1).2020.16, 17, 1, (175-187), (2020).
- Aritra Pan, Arun Kumar Misra, Assessment of Asymmetric Information Cost in Indian Stock Market: A Sectoral Approach, Global Business Review, 10.1177/0972150919865085, (097215091986508), (2020).
- Shangkun Deng, Chenguang Wang, Zhe Fu, Mingyue Wang, An Intelligent System for Insider Trading Identification in Chinese Security Market, Computational Economics, 10.1007/s10614-020-09970-8, (2020).
- Jun Chen, Huimin Li, Dazhi Zheng, The Impact of Margin-Trading and Short-Selling on Stock Price Efficiency—Evidence from the Fifth-Round Ban Lift in the Chinese Stock Market, The Chinese Economy, 10.1080/10971475.2020.1721017, (1-20), (2020).
- Gbenga Ibikunle, Davide Mare, Yuxin Sun, The paradoxical effects of market fragmentation on adverse selection risk and market efficiency, The European Journal of Finance, 10.1080/1351847X.2020.1745861, (1-23), (2020).
- Peter Cziraki, Jordi Mondria, Thomas Wu, Asymmetric Attention and Stock Returns, Management Science, 10.1287/mnsc.2019.3460, (2020).
- Alex YiHou Huang, Ming-Che Hu, Quang Thai Truong, Asymmetrical impacts from overnight returns on stock returns, Review of Quantitative Finance and Accounting, 10.1007/s11156-020-00911-y, (2020).
- David Easley, Marcos López de Prado, Maureen O’Hara, Zhibai Zhang, Microstructure in the Machine Age, The Review of Financial Studies, 10.1093/rfs/hhaa078, (2020).
- Marie Dutordoir, Evangelos Vagenas‐Nanos, Patrick Verwijmeren, Betty Wu, A rundown of merger target run‐ups, Financial Management, 10.1111/fima.12331, 0, 0, (2020).
- Feng Jiao, Sergei Sarkissian, Global Liquidity Provision and Risk Sharing, Journal of Financial and Quantitative Analysis, 10.1017/S0022109020000502, (1-33), (2020).
- Nina Boyarchenko, David Lucca, Laura Veldkamp, Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Auctions, Journal of Political Economy, 10.1086/711954, (2020).
- Tom Berglund, Liquidity and Corporate Governance, Journal of Risk and Financial Management, 10.3390/jrfm13030054, 13, 3, (54), (2020).
- Kenneth R Ahern, Do Proxies for Informed Trading Measure Informed Trading? Evidence from Illegal Insider Trades, The Review of Asset Pricing Studies, 10.1093/rapstu/raaa004, (2020).
- Jangkoo Kang, Kyung Yoon Kwon, Wooyeon Kim, Flow toxicity of high‐frequency trading and its impact on price volatility: Evidence from the KOSPI 200 futures market, Journal of Futures Markets, 10.1002/fut.22062, 40, 2, (164-191), (2019).
- Alejandro Bernales, Thanos Verousis, Nikolaos Voukelatos, Mengyu Zhang, What do we know about individual equity options?, Journal of Futures Markets, 10.1002/fut.22066, 40, 1, (67-91), (2019).
- Sudarshan Jayaraman, Joanna Shuang Wu, Should I Stay or Should I Grow? Using Voluntary Disclosure to Elicit Market Feedback, The Review of Financial Studies, 10.1093/rfs/hhz132, 33, 8, (3854-3888), (2019).
- Tarun Chordia, Jianfeng Hu, Avanidhar Subrahmanyam, Qing Tong, Order Flow Volatility and Equity Costs of Capital, Management Science, 10.1287/mnsc.2017.2848, 65, 4, (1520-1551), (2019).
- Yosra Koubaa, Skander Slim, The relationship between trading activity and stock market volatility: Does the volume threshold matter?, Economic Modelling, 10.1016/j.econmod.2019.01.003, (2019).
- Sanders S. Chang, F. Albert Wang, Informed contrarian trades and stock returns, Journal of Financial Markets, 10.1016/j.finmar.2018.08.002, 42, (75-93), (2019).
- Valeria Martinez, Yiuman Tse, The impact of tick-size reductions in foreign currency futures markets, Finance Research Letters, 10.1016/j.frl.2018.03.023, 28, (32-38), (2019).
- Hubert de La Bruslerie, Alain Coën, The Informational Dimensions of the Amihud (2002) Illiquidity Measure: Evidence from the M&A Market, Finance Research Letters, 10.1016/j.frl.2019.03.015, (2019).
- Marios Panayides, Thomas Shohfi, Jared Smith, Bulk Volume Classification and Information Detection, Journal of Banking & Finance, 10.1016/j.jbankfin.2019.04.001, (2019).
- Brandon N. Cline, Valeriya V. Posylnaya, Illegal insider trading: Commission and SEC detection, Journal of Corporate Finance, 10.1016/j.jcorpfin.2019.05.007, (2019).
- Alejandro Bernales, Thanos Verousis, Nikolaos Voukelatos, Mengyu Zhang, What Do We Know About Individual Equity Options?, SSRN Electronic Journal, 10.2139/ssrn.3336276, (2019).
- Eduard Krkoska, Klaus Reiner Schenk-Hoppé, Herding in Smart-Beta Investment Products, SSRN Electronic Journal, 10.2139/ssrn.3354963, (2019).
- Akram Khalilov, Beatriz Garcia Osma, Accounting Conservatism and the Profitability of Corporate Insiders, SSRN Electronic Journal, 10.2139/ssrn.3362468, (2019).
- Congshan Zhang, Continuous-Time Volatility Regression in Large Panels, SSRN Electronic Journal, 10.2139/ssrn.3385804, (2019).
- Zhiwei Su, Yi Xue, The Power of the Visible Hand: China's 2015 Stock Market Bailout, SSRN Electronic Journal, 10.2139/ssrn.3324011, (2019).
- Zhen-Xing Wu, Tsung-Yu Chen, Information Asymmetry, Market State, and Implementation Risk, The North American Journal of Economics and Finance, 10.1016/j.najef.2019.101007, (101007), (2019).
- Serhat Yildiz, Bonnie Van Ness, Robert Van Ness, VPIN, liquidity, and return volatility in the U.S. equity markets, Global Finance Journal, 10.1016/j.gfj.2019.100479, (100479), (2019).
- Ignacio Arango, Diego A. Agudelo, How Does Information Disclosure Affect Liquidity? Evidence from an Emerging Market, The North American Journal of Economics and Finance, 10.1016/j.najef.2019.100997, (100997), (2019).
- Yung Chiang Yang, Bohui Zhang, Chu Zhang, Is Information Risk Priced? Evidence from Abnormal Idiosyncratic Volatility, Journal of Financial Economics, 10.1016/j.jfineco.2019.06.013, (2019).
- Tobias Brünner, Price formation in call auctions with insider information, Studies in Economics and Finance, 10.1108/SEF-02-2018-0066, ahead-of-print, ahead-of-print, (2019).
- Jefferson Duarte, Edwin Hu, Lance Young, A comparison of some structural models of private information arrival, Journal of Financial Economics, 10.1016/j.jfineco.2019.08.005, (2019).
- Kee H. Chung, Oliver Kim, Steve C. Lim, Sean Yang, An analytical measure of market underreaction to earnings news, International Review of Economics & Finance, 10.1016/j.iref.2019.08.005, (2019).
- Antoine Bambade, Kesheng Wu, An Assessment of the Prediction Quality of VPIN, Advanced Analytics and Artificial Intelligence Applications [Working Title], 10.5772/intechopen.78899, (2019).
- Peter Huaiyu Chen, Kasing Man, Junbo Wang, Chunchi Wu, The Role of Duration and Trades in the Information Assimilation Process of the US Treasury Market, Advances in Pacific Basin Business, Economics and Finance, 10.1108/S2514-465020190000007007, (155-200), (2019).
- Sijia Zhang, Andros Gregoriou, Initial bank loans, zero-leverage firms and stock market liquidity, Journal of Economic Studies, 10.1108/JES-05-2018-0190, 46, 5, (1028-1051), (2019).
- Benjamin Bennett, René Stulz, Zexi Wang, Does the stock market make firms more productive?, Journal of Financial Economics, 10.1016/j.jfineco.2019.09.006, (2019).
- Matt Brigida, William R. Pratt, High-frequency trading and the weekly natural gas storage report, Studies in Economics and Finance, 10.1108/SEF-03-2018-0092, ahead-of-print, ahead-of-print, (2019).
- Ivan Indriawan, Qingfu Liu, Yiuman Tse, Market quality and the connectedness of steel rebar and other industrial metal futures in China, Journal of Futures Markets, 10.1002/fut.22001, 39, 11, (1383-1393), (2019).
- Shusheng Ding, Yongmin Zhang, Meryem Duygun, Modeling Price Volatility Based on a Genetic Programming Approach, British Journal of Management, 10.1111/1467-8551.12359, 30, 2, (328-340), (2019).
- Dean Katselas, Baljit K. Sidhu, Tom Smith, Chuan Yu, Independently Certified Industry‐specific Disclosures to the Capital Market: The JORC Code in the Australian Mining Industry, Abacus, 10.1111/abac.12153, 55, 1, (128-179), (2019).
- Lennart Ante, Market Reaction to Exchange Listings of Cryptocurrencies, SSRN Electronic Journal, 10.2139/ssrn.3450301, (2019).
- Liao Xu, Xiangkang Yin, Jing Zhao, The sidedness and informativeness of ETF trading and the market efficiency of their underlying indexes, Pacific-Basin Finance Journal, 10.1016/j.pacfin.2019.101217, 58, (101217), (2019).
- Xiafei Li, Di Luo, Financial Constraints, Stock Liquidity, and Stock Returns, Journal of International Financial Markets, Institutions and Money, 10.1016/j.intfin.2019.101139, (101139), (2019).
- Liao Xu, Han Gao, Yukun Shi, Yang Zhao, The heterogeneous volume-volatility relations in the exchange-traded fund market: Evidence from China, Economic Modelling, 10.1016/j.econmod.2019.11.019, (2019).
- G. Abuselidze, A. Slobodianyk, N. Reznik, Ensuring Trading Strategies Profitability with Technical Analysis Tools and Computer Technology, SHS Web of Conferences, 10.1051/shsconf/20197104005, 71, (04005), (2019).
- Yuewen Xiao, Jing Zhao, Price Dynamics of Individual Stocks: Jumps and Information, Finance Research Letters, 10.1016/j.frl.2019.101404, (101404), (2019).
- Vaalmikki Arjoon, Chandra Shekhar Bhatnagar, Prakash Ramlakhan, Herding in the Singapore stock Exchange, Journal of Economics and Business, 10.1016/j.jeconbus.2019.105889, (105889), (2019).
- Yubin Li, Chen Zhao, Zhaodong Zhong, Price Discrimination against Retail Investors: Evidence from Mini Options, Journal of Banking & Finance, 10.1016/j.jbankfin.2019.05.012, (2019).
- Abhinava Tripathi, Alok Dixit, Vipul Vipul, Liquidity of financial markets: a review, Studies in Economics and Finance, 10.1108/SEF-10-2018-0319, 37, 2, (201-227), (2019).
- Keqi Chen, yuehan wang, Xiaoquan Zhu, Information Glitters: Follow Northbound Investors on China’s Interconnected Market, SSRN Electronic Journal, 10.2139/ssrn.3395141, (2019).
- Qiao Liu, Rong Qi, Do We Accept Accrual Profits at Our Peril?, Financial Analysts Journal, 10.2469/faj.v62.n4.4187, 62, 4, (62-75), (2019).
- Kerstin Lopatta, Katarina Böttcher, Sumit K. Lodhia, Sebastian A. Tideman, Parity codetermination at the board level and labor investment efficiency: evidence on German listed firms, Journal of Business Economics, 10.1007/s11573-019-00930-9, (2019).
- Eduard Krkoska, Klaus Schenk-Hoppé, Herding in Smart-Beta Investment Products, Journal of Risk and Financial Management, 10.3390/jrfm12010047, 12, 1, (47), (2019).
- Ying Jiang, Yi Cao, Xiaoquan Liu, Jia Zhai, Volatility modeling and prediction: the role of price impact, Quantitative Finance, 10.1080/14697688.2019.1636123, (1-17), (2019).
- Murat Tiniç, Aslıhan Salih, Informed trading, order flow shocks and the cross section of expected returns in Borsa Istanbul, Applied Economics, 10.1080/00036846.2019.1676386, (1-14), (2019).
- Dayong Lv, Wenfeng Wu, Margin trading and price efficiency: information content or price‐adjustment speed?, Accounting & Finance, 10.1111/acfi.12403, 60, 3, (2889-2918), (2018).
- Yingyi Hu, Tiao Zhao, Lin Zhang, Does Low Price Synchronicity Mean More Informativeness in Stock Prices? Empirical Evidence on Information Integration Speed in the Chinese Stock Market, Emerging Markets Finance and Trade, 10.1080/1540496X.2018.1528973, 55, 5, (1014-1033), (2018).
- Thierry Foucault, Laurent Frésard, Corporate Strategy, Conformism, and the Stock Market, The Review of Financial Studies, 10.1093/rfs/hhy077, 32, 3, (905-950), (2018).
- Tyler R. Henry, Security price formation and informed trading with constrained short selling, Review of Quantitative Finance and Accounting, 10.1007/s11156-018-0745-2, 53, 1, (123-151), (2018).
- Balasingham Balachandran, Huu Nhan Duong, Van Hoang Vu, Pension Deficits and the Design of Private Debt Contracts, Journal of Financial and Quantitative Analysis, 10.1017/S0022109018000935, 54, 4, (1821-1854), (2018).
- Liao Xu, Xiangkang Yin, Jing Zhao, Differently motivated exchange traded fund trading activities and the volatility of the underlying index, Accounting & Finance, 10.1111/acfi.12407, 59, S1, (859-886), (2018).
- Seok‐Kyun Hur, Chune Young Chung, THE DISTRIBUTION OF BETAS IN PRESENCE OF NONTRADED ASSETS, Bulletin of Economic Research, 10.1111/boer.12154, 71, 1, (90-112), (2018).
- Alyssa G. Anderson, Yelena Larkin, Does Noninformative Text Affect Investor Behavior?, Financial Management, 10.1111/fima.12225, 48, 1, (257-289), (2018).
- Mahmoud Qadan, Switches in price discovery: Are U.S. traders more qualified in making valuations?, The North American Journal of Economics and Finance, 10.1016/j.najef.2018.01.004, 44, (221-234), (2018).
- Florian Hauser, Klaus Schredelseker, Who benefits from insider regulation?, The Quarterly Review of Economics and Finance, 10.1016/j.qref.2017.08.004, 68, (203-210), (2018).
- Wenjun Feng, Yiming Wang, Zhengjun Zhang, Informed trading in the Bitcoin market, Finance Research Letters, 10.1016/j.frl.2017.11.009, 26, (63-70), (2018).
- Tolga Cenesizoglu, Gunnar Grass, Bid- and ask-side liquidity in the NYSE limit order book, Journal of Financial Markets, 10.1016/j.finmar.2017.10.002, 38, (14-38), (2018).
- Amal Aouadi, Mohamed Arouri, David Roubaud, Information demand and stock market liquidity: International evidence, Economic Modelling, 10.1016/j.econmod.2017.11.005, 70, (194-202), (2018).
- Alex Frino, Gbenga Ibikunle, Vito Mollica, Tom Steffen, The impact of commodity benchmarks on derivatives markets: The case of the dated Brent assessment and Brent futures, Journal of Banking & Finance, 10.1016/j.jbankfin.2017.08.017, 95, (27-43), (2018).
- Jieun Lee, Kee H. Chung, Foreign ownership and stock market liquidity, International Review of Economics & Finance, 10.1016/j.iref.2017.10.007, 54, (311-325), (2018).
- Travis L. Johnson, Eric C. So, A Simple Multimarket Measure of Information Asymmetry, Management Science, 10.1287/mnsc.2016.2608, 64, 3, (1055-1080), (2018).
- Andrew Ellul, Marios Panayides, Do Financial Analysts Restrain Insiders’ Informational Advantage?, Journal of Financial and Quantitative Analysis, 10.1017/S0022109017000990, 53, 01, (203-241), (2018).
- Dirk G. Baur, Thomas Dimpfl, Asymmetric volatility in cryptocurrencies, Economics Letters, 10.1016/j.econlet.2018.10.008, (2018).
- David le Bris, William N. Goetzmann, Sébastien Pouget, The present value relation over six centuries: The case of the Bazacle company, Journal of Financial Economics, 10.1016/j.jfineco.2017.03.011, (2018).
- Max Schreder, Idiosyncratic information and the cost of equity capital: A meta-analytic review of the literature, Journal of Accounting Literature, 10.1016/j.acclit.2018.07.001, 41, (142-172), (2018).
- Arodh Lal Karn, YE Qiang, Rakshha Kumari Karna, Xiaolin Wang, News Sentiment Incorporation in Real-Time Trading, Journal of Global Information Management, 10.4018/JGIM.2018100102, 26, 4, (18-35), (2018).
- See more
