Volume of Trading and Stock Volatility in the Swedish Market
(2012) NEKN02 20121Department of Economics
- Abstract
- Recent studies have shown that increased liquidity is perhaps not always strictly beneficial and that high trading volumes can produce trading noise causing increased volatility above that based on fundamentals. This study investigates whether this applies to the Swedish stock market by analyzing dual-class stocks that have the same cash flow rights but different control rights and different trading volumes. The experiment investigates the effect of volume on observed stock volatility while naturally controlling for the flow of fundamental information. The results indicate that shares with higher trading volume have lower volatility compared to shares with low trading volume. There is no evidence of high trading volumes causing increased... (More)
- Recent studies have shown that increased liquidity is perhaps not always strictly beneficial and that high trading volumes can produce trading noise causing increased volatility above that based on fundamentals. This study investigates whether this applies to the Swedish stock market by analyzing dual-class stocks that have the same cash flow rights but different control rights and different trading volumes. The experiment investigates the effect of volume on observed stock volatility while naturally controlling for the flow of fundamental information. The results indicate that shares with higher trading volume have lower volatility compared to shares with low trading volume. There is no evidence of high trading volumes causing increased volatility and it could be argued that increased liquidity is still beneficial in the Swedish stock market as it is likely to lead to lower volatility and prices closer to their fundamental values. However, more research is needed as this study is rather restrictive and is not generalizable over all shares traded in the market. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2701845
- author
- Maria Gudmundsdottir, Erla LU
- supervisor
- organization
- course
- NEKN02 20121
- year
- 2012
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- volume, volatility, liquidity
- language
- English
- id
- 2701845
- date added to LUP
- 2012-06-08 14:32:38
- date last changed
- 2012-06-08 14:32:38
@misc{2701845, abstract = {{Recent studies have shown that increased liquidity is perhaps not always strictly beneficial and that high trading volumes can produce trading noise causing increased volatility above that based on fundamentals. This study investigates whether this applies to the Swedish stock market by analyzing dual-class stocks that have the same cash flow rights but different control rights and different trading volumes. The experiment investigates the effect of volume on observed stock volatility while naturally controlling for the flow of fundamental information. The results indicate that shares with higher trading volume have lower volatility compared to shares with low trading volume. There is no evidence of high trading volumes causing increased volatility and it could be argued that increased liquidity is still beneficial in the Swedish stock market as it is likely to lead to lower volatility and prices closer to their fundamental values. However, more research is needed as this study is rather restrictive and is not generalizable over all shares traded in the market.}}, author = {{Maria Gudmundsdottir, Erla}}, language = {{eng}}, note = {{Student Paper}}, title = {{Volume of Trading and Stock Volatility in the Swedish Market}}, year = {{2012}}, }