Trading volume and information distribution in a market-clearing framework

This paper investigates the relations between aggregate trading volume and information on financial markets from a theoretical standpoint. Through numerical examples, it relates some statistics describing equilibrium price and volume--such as the variance of the price and its correlation with the true asset value, the volume mean, variance, skewness, and kurtosis--to the distribution of information across traders. The analysis is carried out in a static noisy rational expectations framework, with multiple informed traders, where both the precision and the correlation of the signals observed by the traders can be modified.