Why Volume Information Alone Does Not Guarantee Arbitrage

Summary

This short exchange asks whether perfect advance knowledge of a security's trading volume, without knowing its price, creates a risk-free arbitrage opportunity. The response says it does not: volume by itself does not determine the direction or magnitude of price changes.

The example is that trading activity can occur while the net price change over the relevant interval is zero. Thus, a volume forecast alone supplies no guaranteed profit mechanism. The answer is intentionally brief and does not analyze particular trading strategies, market impact, liquidity, or other information that could make volume useful probabilistically; its claim concerns the absence of a risk-free implication from volume alone.

Key ideas

• Knowing future volume does not reveal the corresponding price change.
• Volume can be high even when the net price movement is zero.
• A volume forecast alone does not establish a risk-free arbitrage opportunity.
• The response does not rule out probabilistic uses of volume alongside other information.

Tags

# Risk-free arbitrage given a volume oracle?


# Risk-free arbitrage given a volume oracle?












Given a magical oracle who can correctly predict the volume, but not the price, of a given security, does there exist a risk-free arbitrage to capitalize on this information?

## Answer by emcor (score 2)

https://quant.stackexchange.com/a/15243

No, because the volume does not indicate the price change. E.g. the price change might net to zero over all times.

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