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Intraday Volume, Volatility, and Price Jumps

Article Quant Q&A · Author: opt
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Summary

The document asks whether intraday volume follows patterns such as clustering or mean reversion, and whether temporary asymmetry in a volume profile could help forecast price movement. It describes a heuristic based on peak-volume price (PVP) and volume-weighted average price (VWAP): when PVP is above VWAP, some traders infer downside pressure toward VWAP, with a possible exception when price is near an edge of the distribution. The question is whether intraday volume distributions are generally symmetric enough to support this approach.

The answer points to academic work on volume and volatility in Chinese equities. It reports that the cited study finds a positive relationship between volume and volatility across time scales, but a negative relationship around price jumps. The proposed explanation distinguishes ordinary trading activity, which accompanies continuous volatility, from information-driven jumps, which may occur without high volume and may be followed by quieter trading. The source does not establish that volume profiles are symmetric or validate the PVP–VWAP directional rule, so it offers context rather than evidence for that specific trading signal.

Key ideas

  • The document raises whether intraday volume has exploitable clustering or mean-reversion patterns.
  • A proposed heuristic interprets PVP relative to VWAP as possible price pressure.
  • The cited study reports a positive volume–volatility relationship across time scales.
  • Around price jumps, the reported relationship between volume and volatility is negative.
  • The cited findings do not validate volume-distribution symmetry or the proposed directional rule.

Tags

EquitiesVolatilityStatisticsMarket microstructure
Full text
# Do intraday volume and volatility share the same properties?


# Do intraday volume and volatility share the same properties?












volatility clustering and mean reversion are very well known properties that one could use when trading. Traders, especially in options world, do take realized vol into account (e.g. by forecasting it or looking at which percentile does the current volatility correspond).

I am wondering if also intraday volumes have the same kind of properties that can be exploited somehow.

I see that some traders look at volume profiles and use indicators like VWAP (volume-weighted averaged price) and PVP (peak volume price, thus the price where the largest intraday volume was traded). In general they assume that intraday volumes tend to generate a symmetric distribution thus following this kind of rule to forecast the price direction:

if the PVP>VWAP then the volumes distribution is skewed upside and this generates a "pressure" to prices to move downwards, at least untile the VWAP. With PVP

There is an exception to this rule: when the price action is on one the extremes of the volume distribution (e.g. price>PVP>VWAP) then the previous logic doesn't apply (even if the PVP>VWAP).

Is there any statistical evidence that intraday volumes actually tend to generate symmetric distributions thus making it possible to exploit the temporary skewness that is generated intraday?

Is there any study on that or anyone willing to share her/his experience on that?

Thank you for your help.

## Answer by lehalle (score 1, accepted)

https://quant.stackexchange.com/a/17540

The relation between volume and the price dynamics (via volatility and jumps), has been explored by various academic papers. Just cite this one and its contained references:

Wang, T., & Huang, Z. (2012). The relationship between volatility and trading Volume in the Chinese Stock Market: A volatility decomposition perspective. Annals of Economics and Finance, 13(1), 211-236.

If you have a look at it you will read

- volatility and volumes are positively correlated at any time scale,

- and if you zoom enough to see "jumps" in the price you will note a negative correlation between them.

It is usually explained by the "common" trading activity generating the continuous component of volatility, but information generates jumps and do not need a lot of volume. Moreover jumps are followed by low volumes.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.