COMMENTARY: Trends in Volume Forecasting: Developments and Applications

Abstract

The authors examine their 2014 publication “Predicting Intraday Trading Volume and Volume Percentages” and discuss subsequent changes in trading that validated the models outlined in the paper and prompted updates. The original models accommodate the general shift to passive investing and the trend toward ETF investing. Analyzing imbalance information has become more important to institutional traders as relative participation in closing auctions has increased. The authors discuss the evolution of analytical software platforms since the paper and outline expected trends in both volume forecasting and trading analytics. A major application of enhanced volume forecasts relates to the trend of buy-side clients performing scientific experiments to select algorithms and inform parameter selection. Specifically, volume profile error, a metric examined in the paper, provides context to compare broker algorithm performance and real-time volume forecasts can be used in algorithm routing decisions.