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GARCH will work if volume has memory with some decay. AR will work if volume has mean reversion properties. Both of these are empirical questions and depend on the market. You should also consider if there are seasonal (day-of-week, monthly, quarterly effects) in which case you would want to add dummy variables. MA models will work well if volume behaves ...

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In fact if you make the time change $$t\rightarrow \int_{\tau\leq t} V_\tau d\tau$$ a TWAP is a VWAP. So just define the FWAP associate to a transform F: (you should ask to F to be an adapted stochastic process if you want to use models) $$t\rightarrow \int_{\tau\leq t} F(\tau) d\tau$$ You will have a new benchmark. The real question is "what do you ...

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When volatility is high, daily volume is high. And when volatility is high, daily returns are high. That's why when volume is high, the price returns are high. Volatility (like volumes) is autocorrelated. This is the phenomenon of volatility clustering (large changes tend to be followed by large changes, of either sign) and volume clustering (large volumes ...

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Not to over simplify, but there is the different scaling to consider here as well. Volumes and volume changes are observed in 1000s and 100s, while prices and price changes are observed in 100s and 1s. For most medium and smaller stocks prices and price changes are observed in 1s and 0.01s. Clarify this through the identity Var(aX) = a²Var(X). Since the ...

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The technical analysis point of view: an increase in volume (assuming the price has been in a downtrend) means the crowd are throwing in the towel, i.e. everyone is dumping the stock and assuming that hoped-for rise is now never going to happen. The same on the way up: everyone jumps on the bandwagon. In other words, high volume typically means crowd ...

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You are referring to the Penny Pilot Program. Only options whose premiums are quoted at a price less than \\$3 may be eligible for penny increments, except for IWM, QQQ, and SPY, which are always quoted in pennies. The list of permitted classes doesn't seem to come from specific volume criteria. Instead, the SEC and the exchanges together roll-out names in ...

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"does the underlying usually see increased trading?" Not necessarily. Most market makers do not re-hedge much in the underlying. In many markets the delta is exchanged (off-exchange) alongside the options trade at initiation, making both parties delta neutral at the outset. Re-hedges in large vol books are generally accomplished through other options and ...

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Volume is a flow, whereas price is a stock. As wikipedia notes, Stocks and flows have different units and are thus not commensurable – they cannot be meaningfully compared, equated, added, or subtracted. It makes no sense to compare the variance of price to the variance of volume. They are simply two fundamentally different things.

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First: once you will have your liquidity indicator, you will need to know if the signal is worth the risk to go faster (or slower if it is a negative signal). Impulse control will tell you that: http://www.ceremade.dauphine.fr/~bouchard/pdf/BML09.pdf Optimal control of trading algorithms: a general impulse control approach, by Bruno Bouchard, Ngoc Minh Dang, ...

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Nearly every options trader - and every options marketmaker - will hedge their derivatives exposure by trading the underlying. So even if I buy a set of naked calls, my counterparty (e.g. whoever is writing me the options, usually a hedge fund or a bank) will have negative exposure to the stock and buy it to cancel out their risk. Think of an option as ...

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