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The dynamics of the volatility – trading volume relationship: New evidence from developed and emerging markets

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  • Loredana Ureche-Rangau

    ()
    (Université de Picardie Jules Verne, CRIISEA)

  • Fabien Collado

    ()
    (Msc student, Ieseg School of Management)

  • Ulysse Galiay

    ()
    (Msc student, Ieseg School of Management)

Abstract

This paper empirically investigates whether there is an evolution in the relation between stock market trading volume and volatility in 23 developed and 15 emerging markets. To answer this question, we develop a dynamic application of the TARCH (1, 1) model and first prove that the relationship is variable through time. Then, we focus our analysis on three major financial events, namely the Asian Crisis, the Dot Com bubble burst and the Subprime crisis. We find that the explanatory power of volume is greater during these periods. Finally, we show that the sign of the relationship cannot be clearly set for a specific country or sub group of developed or emerging markets.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P231.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2569-2583

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Handle: RePEc:ebl:ecbull:eb-11-00196

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Related research

Keywords: Mixture of distribution hypothesis; TARCH model; Conditional variance; Trading volume;

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References

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  1. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
  2. Harris, Lawrence, 1987. "Transaction Data Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 127-141, June.
  3. Hua He & Jiang Wang, 1995. "Differential Information and Dynamic Behavior of Stock Trading Volume," NBER Working Papers 5010, National Bureau of Economic Research, Inc.
  4. Saatcioglu, Kemal & Starks, Laura T., 1998. "The stock price-volume relationship in emerging stock markets: the case of Latin America," International Journal of Forecasting, Elsevier, vol. 14(2), pages 215-225, June.
  5. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  6. Thierry Ané & Loredana Ureche-Rangau, 2004. "Does trading volume really explain stock returns volatility?," Working Papers 2004-FIN-02, IESEG School of Management.
  7. Jeff Fleming & Chris Kirby & Barbara Ostdiek, 2006. "Stochastic Volatility, Trading Volume, and the Daily Flow of Information," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1551-1590, May.
  8. Ping Wang & Peijie Wang & Aying Liu, 2005. "Stock return volatility and trading volume: evidence from the chinese stock market," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 3(1), pages 39-54.
  9. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  10. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
  11. Liesenfeld, Roman, 2001. "A generalized bivariate mixture model for stock price volatility and trading volume," Journal of Econometrics, Elsevier, vol. 104(1), pages 141-178, August.
  12. Gabriele Galati, 2000. "Trading volumes, volatility and spreads in foreign exchange markets: evidence from emerging market countries," BIS Working Papers 93, Bank for International Settlements.
  13. Niklas Wagner & Terry A. Marsh, 2004. "Surprise Volume and Heteroskedasticity in Equity Market Returns," Econometrics 0409009, EconWPA.
  14. Lobato, Ignacio N & Velasco, Carlos, 2000. "Long Memory in Stock-Market Trading Volume," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 410-27, October.
  15. Loredana Ureche-Rangau & Quiterie de Rorthays, 2009. "More on the volatility-trading volume relationship in emerging markets: The Chinese stock market," Journal of Applied Statistics, Taylor & Francis Journals, vol. 36(7), pages 779-799.
  16. Manabu Asai & Angelo Unite, 2008. "The relationship between stock return volatility and trading volume: the case of the Philippines," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1333-1341.
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