Publications [#49137] of Duy T Tran

Working Papers

1. D.T. Tran, Relationship between persistent and erratic volatility factors with trading activity (2006) [pdf]
   (last updated on 2006/11/02)

   Abstract:
   We study the relationship between persistent and erratic volatility factors and trading activity. Consistent with Jones et al. (1994), our estimation results show that the frequency of trades is significantly and positively associated with return volatility. The results also confirm the findings of Xu and Wu (1999), Chan and Fong (2000), and Huang and Masulis (2003) that the average trade size is also statistically significant in the volatility regression, even when we have accounted for the effects of the number of transactions. It is worth emphasizing that our result is broader than those of the previous papers because we separate the return volatility into two distinct factors, persistent and erratic; both volatility factors are significantly associated with the number of transactions and average trade size. An important finding of this paper is that both the number of transactions and the average trade size have a stronger positive relationship with the erratic volatility factor than with the persistent factor. This result is robust whether the stocks are actively or thinly traded. Moreover, both the number of transactions and the average trade size play more significant roles in the association with the volatility of the relatively thinly traded stocks than with the active stocks; this result is robust with respect to both the persistent and erratic volatility factors. Our findings suggest that one can learn more about the stock market through studying the association of trading activity with each distinct component of the return volatility than by focusing only on the relationship between trading activity and the total return volatility.