Find solution
What is high trading volume in a stock indicative of?

What correlations, if any, exist between stock volatility and trading volume?

  • I was thinking the price of Apple (AAPL) is getting really high ($600+/share) and why its Board doesn't authorize a stock split, as they've done (three times) in the past.  Clearly, there is a lot of demand for the stock (i.e. volume).  Would the lower market price, resulting from a split, encourage a flood of new investors (who could then afford the stock the lower-priced stock) and would that increased trading volume create volatility in the stock?  Is that what the Board wants to avoid, unwanted volatility?  Just trying to speculate why they don't AAPL doesn't split.  Comments?  Ideas?  Speculation?

  • Answer:

    Low volume results in higher volatility, all else equal, in the same way that smaller samples have higher variance. Single large orders would have larger effects on a thin order book. This is why low-volume moves mean less in terms of fundamentals than high-volume moves.

Anonymous at Quora Visit the source

Was this solution helpful to you?

Other answers

There is no-correlation as such between a stock price and trading volume. A high stock price doesn't guarentee that a stock would be volatile and vice versa. let me site this with a example 1. Berkshire Hathaway Stock has average daily volume of 264 and a beta of 0.51, and a price of $220,000. 2. Apple stock has a daily volume of 50M and a beta of 0.91 and a price of $130. This means that although the volume of shares traded of Berkshire on average are just 260 compared to 50M of Apple, it has almost half the volatility as compared to stock of Apple. There is just one apparent relation that when trading volumes are extremely high as compared to average volume, there will be huge volatility in the stock price movement. Now discussing about why Apple didn't split the stock despite the price reaching 600$. It is absolutely true that stock split can lead to volatility in the market both ways, but this is mostly used for attracting investors who get a sense of greater wealth from stock split and pounce on looking at the lower price. However, the companies are also extremely skeptical about them and don't go for stock splits when the valuations of the stock have streched on the upside and they forsee no major stock movement on the upside due to stock split. The same was the case with Apple at a price of $600. Apple stock had already become 6 times from 2009 to 2013 and hence there was a little room for the stock on the upside. So they didn't go for stock split, as it could have a disastrous downward spiral effect on the stock. Caterpillar Inc did this mistake in 2011 and their stock price dropped by 40%. Apple is too smart to fall into this trap,so they didn't go for split when the price was $600.

Abhinav Kukreja

A stock split is like a Groupon. A way to bring in more customers, that you don't really want. This article shows that stocks with higher prices actually have more liqudity and volatility than lower prices, but this could be a problem with the samples chosen and they are in tech, http://www.msnbc.msn.com/id/46849945/ns/business-motley_fool/#.T3HqUMWvLTo

Tom Goodwin

Related Q & A:

Just Added Q & A:

Find solution

For every problem there is a solution! Proved by Solucija.

  • Got an issue and looking for advice?

  • Ask Solucija to search every corner of the Web for help.

  • Get workable solutions and helpful tips in a moment.

Just ask Solucija about an issue you face and immediately get a list of ready solutions, answers and tips from other Internet users. We always provide the most suitable and complete answer to your question at the top, along with a few good alternatives below.