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Decomposing the Dynamics of Intra-Day Trading Activity and Trading Outcomes

Separating trading activity from trading volume, we identify systematic time-varying sources of intraday calendar-time return volatility. Like trading volume, the inverse of the time it takes stock-specific fixed-dollar positions to trade evolves according to a U-shaped pattern over the trading day. However, the associated trade-time return volatility falls over the day: the higher calendar-time volatility near close solely reflects the greater trading volumes. We find that controlling for time-of-day seasonalities, trade-time return volatility and price impacts are inversely related to trading activity. Moreover, it is trading activity, not trading location or order type, that underlies these patterns. We provide evidence that unexpected trading activity drives patterns early in the day, while expected activity matters more later. Our findings support predictions of models featuring strategic inventory-rebalancing traders who target closing positions, and underscore the importance of imperfectly-competitive liquidity provision in driving price impact-activity relationships --- larger price impacts in less active markets.