Chasing the Same Signals: How Black-Box Trading Influences Stock Markets from Wall Street to Shanghai

Chapter 6. The Arms Race

Why a Company's Trading Volume Is More Closely Watched than Its Earnings

One of the most widely viewed financial pages is the list of "most active" stocks on the day. This is a summary list of the most actively traded stocks by market volume. It can usually be found alongside tables showing the "biggest gains" and "biggest losses." Even the most novice of retail investors is familiar with the value of these brief market summaries, because the data provide a quick snapshot of the activity on the day, and allow an investor to observe whether there are any outliers from the normal market movements.

The most active stocks are predominately large-capitalization stocks. The top-10 most active U.S.-listed stocks would most certainly include Microsoft, General Electric, Procter & Gamble, and Wal-Mart regularly, if not every day. An outlier would be seeing a lesser-known firm breaching the top 10. An investor would know immediately that there must have been an event to trigger the elevated trading volume. A drug company may have received a long-awaited regulator approval for a new vaccine; a mining firm may have uncovered a repository of gold; an accounting firm may be linked to rumors of a scandal. Information drives the relative level of trading activity in the stock market.

The most active lists, however, say little about how the volume arrived in the market. Did it occur during the market open? Was trading elevated around the market close? Was there a large block ...