Trading Volume: Implications of an Intertemporal Capital Asset Pricing Model

Topics:
Investment and Capital Markets
Tags:
Asset,
Asset Management,
Business Operations,
Operational Planning,
Portfolio,
Risk
Source:
New York University

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Overview: This paper deals with an intertemporal capital asset pricing model with multiple assets and heterogeneous investors, and explores its implications for the behavior of trading volume and asset returns. Assets contain two types of risks: market risk and the risk of changing market conditions. It shows that investors trade only in two portfolios: the market portfolio, and a hedging portfolio, which allows them to hedge the dynamic risk. This implies that trading volume of individual assets exhibit a two-factor structure and their factor loadings depend on their weights in the hedging portfolio.

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Format: PDF | Size: 872KB | Date: Nov 2002 | Pages: 64

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