INFORMATION, TRADING, AND VOLATILITY

We examine the effects of trading and information flows on the short-r un behavior of stock prices by comparing the behavior of stock return volatility during trading and nontrading periods. We define nontrading periods as periods when exchanges and businesses are open but traders endogenously choose not to trade. After correcting for the bid/ask bo unce and stickiness in quotes, we find that a large proportion of dail y stock return volatility occurs without trades, especially for large firms. Furthermore, we provide new evidence that public (versus privat e) information is the major source of short-term return volatility.