The Relation Between Price Changes and Trading Volume: A Survey

TLDR

Previous theoretical research on the price‑volume relation is summarized and critiqued, highlighting key insights. The paper reviews prior research on price‑volume relations, proposes a simple model, critiques theoretical work, and outlines future research directions. The authors review existing literature, critique theoretical studies, and propose a simple model of the price‑volume relationship. Two empirical relations are established: volume is positively related to price‑change magnitude and, in equity markets, to price change itself.

Abstract

This paper reviews previous and current research on the relation between price changes and trading volume in financial markets, and makes four contributions. First, two empirical relations are established: volume is positively related to the magnitude of the price change and, in equity markets, to the price change per se. Second, previous theoretical research on the price-volume relation is summarized and critiqued, and major insights are emphasized. Third, a simple model of the price-volume relation is proposed that is consistent with several seemingly unrelated or contradictory observations. And fourth, several directions for future research are identified.