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The Empirical Relationship Between Stock Returns, Return Volatility and Trading Volume in the Brazilian Stock Market

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Author Info

  • Otavio Ribeiro de Medeiros

    (University of Brasilia)

  • Bernardus Ferdinandus Nazar Van Doornik

    (Brazil Central Bank)

Abstract

We investigate the empirical relationship between stock returns, return volatility and trading volume in the Brazilian stock market (Bovespa). Our sample contains stock return and trading volume data from a theoretical portfolio including stocks participating in the Bovespa Index (Ibovespa) extending from 01/03/2000 through 12/29/2005. The empirical methods used include cross-correlation analysis, unit-root tests, bivariate simultaneous equations regression analysis, GARCH and VAR models, and Granger causality tests. We find support for a contemporaneous as well as a dynamic relationship between stock returns and trading volume, implying that forecasts of one of these variables can be only slightly improved by knowledge of the other. Besides, our results indicate that contemporaneous and dynamic relationships between return volatility and trading volume also exist. Additionally, by applying Granger’s causality test, we find that return volatility contains information about upcoming trading volume and vice versa.

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File URL: http://www.bbronline.com.br/public/edicoes/5_1/artigos/w91t82wo771122010170635.pdf
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Bibliographic Info

Article provided by Fucape Business School in its journal Brazilian Business Review.

Volume (Year): 5 (2008)
Issue (Month): 1 (January)
Pages: 01-17

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Handle: RePEc:bbz:fcpbbr:v:5:y:2008:i:1:p:01-17

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Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
Phone: +55 27 4009-4423
Fax: +55 27 4009-4422
Web page: http://www.bbronline.com.br/
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Related research

Keywords: Return Volatility; Trading Volume; GARCH; VAR; Granger Causality;

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Cited by:
  1. Kerr Hatrick & Mike So & S. Chung & R. Deng, 2011. "Dynamic Relationship among Intraday Realized Volatility, Volume and Number of Trades," Asia-Pacific Financial Markets, Springer, vol. 18(3), pages 291-317, September.

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