Asymmetric information models predict comovements among trade characteristics such as returns, bid-ask spread, and trade volume on one hand and the trading intensity on the other hand.In this paper we investigate empirically the two-sided causality between trade characteristics and trading intensity.We apply a VAR-model for returns, bid-ask spread, trade volume, and trading intensity to transaction data on five stocks traded on the NYSE, covering the period August 1 until October 31, 1999.Similar to Dufour and Engle (2000), we find that the price impact of a trade is larger, the higher the trading intensity.Moreover, we establish significant feedback from the trade characteristics to the the trading intensity.Wide spreads, large volume, and high returns have a significantly positive impact on the trading intensity.We show that this feedback affects the price impact of large trades in transaction and in calendar time.
|Place of Publication||Tilburg|
|Number of pages||33|
|Publication status||Published - 2002|
|Name||CentER Discussion Paper|
- vector autoregressive models
- duration ananlysis