A new interpretation of known facts: The case of two-way causality between trading and volatility

Efficient price setting implies that news create volatility since traders flock to the market in order to re-optimise their portfolios. In due course of the price finding process volatility should decline once the asset price approaches its new, efficient level. In this note I present evidence that the reverse mechanism plays as well. Traders genuinely increase volatility challenging the presumption that more traders help to identify the efficient price more quickly.

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Year of publication:	2012
Authors:	Müller, Christian
Published in:	Economic Modelling. - Elsevier, ISSN 0264-9993. - Vol. 29.2012, 3, p. 664-670
Publisher:	Elsevier
Subject:	Rational expectations \| Uncertainty \| Causality \| Very high frequency data

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Type of publication:	Article
Classification:	C5 - Econometric Modeling ; F3 - International Finance ; B4 - Economic Methodology
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011048711