IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v71y2024ics1062940824000238.html
   My bibliography  Save this article

The volume-implied volatility relation in financial markets: A behavioral explanation

Author

Listed:
  • Cheuathonghua, Massaporn
  • Padungsaksawasdi, Chaiyuth

Abstract

We examine the relation between trading volume and associated CBOE’s implied volatility in commodity ETFs, stock market indices, and stock market index ETFs by employing a new perspective, behavioral concepts. Availability, conservatism, and extrapolation biases work well in explaining the trading volume-implied volatility relations in all types of assets. Coefficients of contemporaneous and lagged trading volumes are statistically significant, showing that investors rely on recently observed or experienced due to their fresh memory and recent experience. This is supported by availability and conservatism biases. In addition, given statistically significant coefficients of lead trading volume, traders also overweigh recent situations when making a decision and are slow to change their former beliefs in the arrival of new information, supported by conservatism and extrapolation biases. The relation is more pronounced in the most extreme quintiles, demonstrating an asymmetric trading volume-implied volatility relation. Of all, the relation of euro currency is weakest. We conclude that difference in findings depends on types of assets, which have different patterns of volatility skew.

Suggested Citation

  • Cheuathonghua, Massaporn & Padungsaksawasdi, Chaiyuth, 2024. "The volume-implied volatility relation in financial markets: A behavioral explanation," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000238
    DOI: 10.1016/j.najef.2024.102098
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940824000238
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2024.102098?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Implied volatility; Trading volume; Commodity; ETF; Heuristics; Behavioral finance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000238. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.