Noise Trading, Transaction Costs, and the Relationship of Stock Returns and Trading Volume
The relationship of stock returns and trading volume is the focus of much recent interest. I examine an economic model of a rational trader who operates in a market with transactions costs and noise trading. The level of trading affects the rational trader’s marginal cost of transacting; as a result...
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Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
1994
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Series: | IMF Working Papers
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Subjects: | |
Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
Summary: | The relationship of stock returns and trading volume is the focus of much recent interest. I examine an economic model of a rational trader who operates in a market with transactions costs and noise trading. The level of trading affects the rational trader’s marginal cost of transacting; as a result, trading volume is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a simple way to scrutinize this relationship empirically. Empirical evidence supports the implications of the model |
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Physical Description: | 36 pages |
ISBN: | 9781451854879 |