A theory of the interday variations in volume, variance, and trading costs in securities markets

In an adverse selection model of a securities market with oneinformed trader and several liquidity traders, we study theimplications of the assumption that the informed trader hasmore information on Monday than on other days. We examine theinterday variations in volume, variance, and adverse selectioncosts, and find that on monday the trading costs and the varianceof price changes are highest, and the volume is lower than onTuesday. These effects are stronger for firms with better publicreporting and for firms with more discretionary liquidity trading.