Turnover rate volatility coefficient
factor.formula
Turnover rate volatility coefficient:
Daily turnover rate (T_t):
in:
- :
The daily turnover rate on day t.
- :
The trading volume on day t.
- :
The outstanding shares on day t.
- :
The length of the time window for calculating the turnover rate volatility coefficient (unit: month). For example, K=3 means using the daily turnover rate data of the last three months for calculation.
- :
The standard deviation of the daily turnover rate series in the last K months measures the volatility of the turnover rate.
- :
The average of the daily turnover rate series in the last K months measures the average trading activity during this period.
factor.explanation
The turnover volatility coefficient is an indicator of stock liquidity risk. A higher turnover volatility coefficient means that the daily turnover rate of a stock fluctuates greatly over a period of time, indicating that the market's expectations of the stock's trading activity are unstable. This uncertainty will increase the transaction cost risk faced by investors when selling stocks in the future. For example, a larger price concession may be required to complete the transaction, resulting in difficulties in executing the transaction. Therefore, stocks with higher turnover volatility coefficients are generally considered to be riskier, and investors may demand higher expected returns to compensate for the risks they take.