Lo, Andrew W. <br/><br/>
Trading Volume:  Definitions, Data Analysis, and Implications of Portfolio Theory / 
Andrew W. Lo, Jiang W. Wang. 
 - Cambridge, Mass.  National Bureau of Economic Research  2000. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w7625 .
 - Working Paper Series (National Bureau of Economic Research)  no. w7625. .
<br/><br/> March 2000. 
<br/><br/> We examine the implications of portfolio theory for the cross-sectional behavior of equity trading volume.  Two-fund separation theorems suggest a natural definition for trading activity: share turnover.  If two-fund separation holds, share turnover must be identical for all securities.  If (K+1)-fund separation holds, we show that turnover satisfies an approximately linear K-factor structure.  These implications are examined empirically using individual weekly turnover data for NYSE and AMEX securities from 1962 to 1996.  We find strong evidence against two-fund separation, and a principal-components decomposition suggests that turnover is well approximated by a two-factor linear model. 
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