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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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Bibliographic Details
Main Author: Kramer, Charles
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1994
Series:IMF Working Papers
Subjects:
Inflation
Wealth
Institutional Investors
Economics
Investment
Stocks
Pension Funds
Return On Investment
Saving
Financial Instruments
Deflation
Intangible Capital
Estimation
Asset Prices
Price Level
Non-bank Financial Institutions
Saving And Investment
Econometric Models
Investments: Stocks
Investments: General
Consumption
Prices
Macroeconomics
Macroeconomics: Consumption
Information And Market Efficiency
Estimation Techniques
Capacity
Econometrics
Investment & Securities
Event Studies
Capital
Econometrics & Economic Statistics
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
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
Physical Description:36 pages
ISBN:9781451854879

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