THINKING: Perspectives

Why Volume Matters: An Empirical Study of U.S. Stock Market Volume

(February 23, 2020) – Volume characteristics of a single stock can be influenced by performance, news, sentiment, and normal investor activity, along with other volume factors such as  of indexes or expiration of derivatives. Our analysis focused on the distribution and correlation of the volume data as grouped by sectors and market capitalization. Statistical analysis and data visualization were leveraged to discover the potential trend in the volume time-series data of the top 2,500 U.S. stocks from 2016 to 2019. Our goal in this exercise was to evaluate this data in search of answers to questions posed by some investment professionals.

Our questions and findings included the following:

  • How significant is the volume impact of Quadruple Witching, S&P Index rebalances and Russell Index reconstitution? As you might expect, Quadruple Witching (“Quad Witch”), the Russell Index rebalance (“Russell Recon”), and S&P Index Rebalances (“S&P Rebalance”) contribute significantly to volume spikes. The month of June is unique in that volume surges twice resulting in a bimodal shape. The second spike is slightly higher than the first because the Russell Recon boosts the volume more than the combined effect of Quad Witch and the S&P Rebalance.
  • Does Friday always have the greatest daily volume over other days of the week? Without the impact of Quad Witch and index rebalancing, the volume does not vary much on any given day of the week.
  • How quickly does volume decay after a significant spike? The market data shows a significant level of autocorrelation with a lag of 3 days, but typically almost all the market volume trend will decay after 5 trading days.
  • How does volume behave across sectors and market cap? Energy and Communication Service sectors exhibit the highest trading volume, while Industrials and Real Estate have the lowest trading volume.  Materials sectors tend to be the least correlated to any other sector.  For micro-cap, small-cap, and mid-cap stocks, the Russell Index reconstitutions has a significantly greater impact on volume than Quad Witch and the S&P Rebalance.   As market cap increases the volume impact of Quad Witch and S&P Rebalance grows rapidly and finally surpasses the Russell Recon in the mega-cap category.

These observations and others are covered in more detail on the pages that follow. if you are an institutional investor and desire a more in-depth discussion of our volume analysis, please contact us at