The Impact of Trading Activity by Trader Types on Asymmetric Volatility in Nasdaq-100 Index Futures

We test the hypothesis of Avramov, Chordia, and Goyal (2006) that asymmetric volatility is governed by the trading dynamics of informed and uninformed traders; uninformed trades increase volatility following asset price declines while informed trades decrease volatility following asset price increases. Using a dataset that directly distinguishes between informed and uninformed trades, we find that only the trading activity of small liquidity traders (i.e. retail investors) accounts for the asymmetric volatility relationship. Thus, the hypothesis of Avramov et al. is only partially supported.