Title: Trading volume, volatility, order flow and spread: evidence from a Tunisian dealer

Authors: Imen Kouki, Mahfuzul Haque

Addresses: Higher Institute of Management-Tunis, 41, Rue de la Liberte – Bouchoucha, Bardo 2000, Tunisia. ' Scott College of Business, Indiana State University, Terre Haute, IN 47809, USA

Abstract: The paper empirically tests Mixture of Distributions Hypothesis theory for the relationship between Order Flow and volatility and bid–ask spread for the two series (USD and EUR) of a Tunisian dealer and find that the dollar exchange rate confirms the microstructure hypothesis, and there is a positive correlation between volatility and spread for the dollar by the inventory cost and the asymmetric information models. The MDH theory cannot explain the behaviour of TND/EUR exchange rate and find the volatility not correlated to volume or to the order flow. We also find that volume has no information content on volatility and spread and this independence exemplifies the degree of Tunisian market illiquidity.

Keywords: emerging markets; order flow; transaction volume; exchange rate volatility; bid–ask spread; dollar exchange rate; inventory cost; asymmetric information models; Tunisia; market illiquidity; trading volume.

DOI: 10.1504/IJBEM.2011.042997

International Journal of Business and Emerging Markets, 2011 Vol.3 No.4, pp.354 - 376

Published online: 17 Apr 2015 *

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