We examine the dynamics of return volatility, trading volume, and depth—in an intraday setting for a sample of actively traded NYSE and NASDAQ stocks. We show that depth is a useful intervening variable and mitigates the impact of trading activity on price volatility. Furthermore, depth is affected by the perception of prevailing information asymmetry between informed and uninformed traders. We demonstrate empirically that the NYSE supplies greater depth under conditions of high, perceived information asymmetry as compared to NASDAQ. NASDAQ makes up for this deficiency by its capability of managing large volume shocks without a major decline in depth.
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JEL Classification: C32, D82, G10
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Rahman, S., Krishnamurti, C. & Lee, A.C. The Dynamics of Security Trades, Quote Revisions, and Market Depths for Actively Traded Stocks. Rev Quant Finan Acc 25, 91–124 (2005). https://doi.org/10.1007/s11156-005-4244-x