There exists a tradeoff between adverse selection costs on the one hand and discreteness elated costs and opportunity costs of monitoring the market on the other hand.
Under certain parameter values, there exists an optimal price. We ocument an inverse relation between the coefficient of variation of intraday trading volume and the stock price level. This empirical evidence and ther existing evidence are consistent with the model. r 2002 Elsevier Science B.V. All rights reserved