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Using Volume Time for Intraday Market Analysis

Article Quant Q&A · Author: mbz0
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Summary

Volume time rescales a trading day according to cumulative traded volume, with the measure progressing from the session open to its close. Because activity varies across the day, this clock can make an individual instrument’s observations more regular in relation to market activity than equally spaced calendar-time observations.

The answer frames this as a useful choice for studies focused on one instrument, while pointing out a key limitation: different securities accumulate volume at different rates, so their observations cannot be synchronized naturally on a shared volume clock. Cross-asset analysis and comparisons with events tied to fixed times, such as market opens or auctions, generally require calendar time. The discussion provides conceptual guidance rather than data or a quantitative test of when volume-time sampling improves a particular analysis.

Key ideas

  • Volume time indexes observations by cumulative trading activity rather than elapsed clock time.
  • It can produce a more regular series for single-instrument intraday analysis.
  • Separate instruments generally do not share a common volume-time coordinate.
  • Calendar time is needed to align assets and fixed-time market events.

Tags

EquitiesStatisticsMarket microstructure
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# Why should we rather work with volume time?


# Why should we rather work with volume time?












Many articles that I came across use volume time $v$ in their computations since the market activity level varies substantially throughout the day (intraday volume and volatility patterns), which is the cumulative volume function defined by $v=0$ at the open and $v=1$ at the close.

Could anyone explain the purpose of introducing such a variable? What's the problem with a varying volume profile?

Thanks

## Answer by lehalle (score 5)

https://quant.stackexchange.com/a/59587

There is a good and a bad point in using volume-time in place of calendar-time:

- on the one hand, you obtain a more "regular" time series

- but on the other hand, you cannot synchronize two time series this way: what is the the "common volume time" between two stocks?

- I am more familiar with the intraday aspect of re-timing than with the daily data. So let me underline that on intraday, you would like to have some "rendez-vous points" that are the same each day, and calendar clock-driven. Some call auctions for instance, or the opening of US market for European stocks.

I would hence say that volume-time is interesting for a narrow "one instrument focus" study. As soon as you want to relate the dynamics of your stock with respect to the "external world" (either a physical clock, or other stocks or any other tradable instrument): you usually have to come back to calendar-time...

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.