Information Asymmetry,Trade Size,and the Dynamic Volume‐Return Relation: Evidence from the Australian Securities Exchange

This paper investigates the influence of information asymmetry on the cross‐sectional variation of volume‐return relation. We find that the dynamic volume‐return relation within medium‐size trades has the most significant response to the degree of information asymmetry. We also show that the effect of information asymmetry on the volume‐return dynamics migrates to small‐size trades in recent years, especially in larger stocks. These results are consistent with the notion that informed traders prefer medium‐size trades and this preference has shifted to small‐size trades. Our findings highlight the importance of incorporating informed traders’ trade‐size decision in the examination of the dynamic volume‐return relation.