A Look Inside the Shifting Volume Smile for U.S. Equities

Abstract

Industry reports on the intraday volume profile of U.S. equities, known to many as the volume smile, have noted that volumes have shifted toward closing auctions. In this article, we study how volume profiles have evolved over the last three years for different groups of U.S. equities. We analyze how the percent of daily volume has changed in three parts of the trading day: opening auctions; the last 15 minutes of continuous trading; and closing auctions. Although much of the trade press tends to treat volume trends as universal across U.S. equities, we conclude that volume shifts can vary considerably across different securities. Our results have practical implications for algorithmic trading strategies, which highlights the importance of using volume forecast models that are specific to symbols or to a group of securities with similar liquidity characteristics and account for the fact that intraday volume profiles change over time.