IDEAS home Printed from https://ideas.repec.org/a/ibf/ijbfre/v4y2010i3p93-101.html
   My bibliography  Save this article

An Empirical Study Of Volatility And Trading Volume Dynamics Using High-Frequency Data

Author

Listed:
  • Wen-Cheng Lu
  • Fang-Jun Lin

Abstract

This paper examines the dynamic relationship of volatility and trading volume using a bivariate vector autoregressive methodology. This study found bidirectional causal relations between trading volume and volatility, which is in accordance with sequential information arrival hypothesis that suggests lagged values of trading volume provide the predictability component of current volatility. Findings also reveal that trading volume shocks significantly contribute to the variability of volatility and then volatility shocks partly account for the variability of trading volume.

Suggested Citation

  • Wen-Cheng Lu & Fang-Jun Lin, 2010. "An Empirical Study Of Volatility And Trading Volume Dynamics Using High-Frequency Data," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 93-101.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:93-101
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-8.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Eleanor Xu, Xiaoqing & Chen, Peter & Wu, Chunchi, 2006. "Time and dynamic volume-volatility relation," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1535-1558, May.
    2. James C. Luu & Martin Martens, 2003. "Testing the mixture‐of‐distributions hypothesis using “realized” volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(7), pages 661-679, July.
    3. Martens, Martin, 2001. "Forecasting daily exchange rate volatility using intraday returns," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 1-23, February.
    4. Manganelli, Simone, 2005. "Duration, volume and volatility impact of trades," Journal of Financial Markets, Elsevier, vol. 8(4), pages 377-399, November.
    5. Roger A. Fujihara & Mbodja Mougoué, 1997. "An examination of linear and nonlinear causal relationships between price variability and volume in petroleum futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(4), pages 385-416, June.
    6. Martin Martens, 2002. "Measuring and forecasting S&P 500 index‐futures volatility using high‐frequency data," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(6), pages 497-518, June.
    7. Harris, Lawrence, 1986. "Cross-Security Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(1), pages 39-46, March.
    8. Epps, Thomas W & Epps, Mary Lee, 1976. "The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis," Econometrica, Econometric Society, vol. 44(2), pages 305-321, March.
    9. Grammatikos, Theoharry & Saunders, Anthony, 1986. "Futures Price Variability: A Test of Maturity and Volume Effects," The Journal of Business, University of Chicago Press, vol. 59(2), pages 319-330, April.
    10. Bessembinder, Hendrik & Seguin, Paul J., 1993. "Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(1), pages 21-39, March.
    11. George H. K. Wang & Jot Yau, 2000. "Trading volume, bid–ask spread, and price volatility in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(10), pages 943-970, November.
    12. Suk-Joong Kim, 2018. "Information Leadership in the Advanced Asia-Pacific Stock Markets: Return, Volatility and Volume Information Spillovers from the US and Japan," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 9, pages 271-304, World Scientific Publishing Co. Pte. Ltd..
    13. Zhiyao Chen & Robert T. Daigler, 2008. "An examination of the complementary volume–volatility information theories," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(10), pages 963-992, October.
    14. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
    15. Robert T. Daigler & Marilyn K. Wiley, 1999. "The Impact of Trader Type on the Futures Volatility‐Volume Relation," Journal of Finance, American Finance Association, vol. 54(6), pages 2297-2316, December.
    16. Andersen, Torben G. & Bollerslev, Tim & Lange, Steve, 1999. "Forecasting financial market volatility: Sample frequency vis-a-vis forecast horizon," Journal of Empirical Finance, Elsevier, vol. 6(5), pages 457-477, December.
    17. Lee, Bong-Soo & Rui, Oliver M., 2002. "The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 51-78, January.
    18. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    19. Corredor Pilar & Santamaria Rafael, 2002. "Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 9(2), pages 107-110.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adeyinka Adediran & Bola Babajide & Nataliia Osina, 2023. "Exploring the nexus between price and volume changes in the cryptocurrency market," Journal of Asset Management, Palgrave Macmillan, vol. 24(6), pages 498-512, October.
    2. Gurleen Sahota & Balwinder Singh, 2016. "The Empirical Investigation of Causal Relationship between Intraday Return and Volume in Indian Stock Market," Vision, , vol. 20(3), pages 199-210, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Todorova, Neda & Clements, Adam E., 2018. "The volatility-volume relationship in the LME futures market for industrial metals," Resources Policy, Elsevier, vol. 58(C), pages 111-124.
    2. Sarika Mahajan & Balwinder Singh, 2013. "Return, Volume and Volatility Relationship in Indian Stock Market: Pre and Post Rolling Settlement Analysis," Global Business Review, International Management Institute, vol. 14(3), pages 413-428, September.
    3. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Sarika Mahajan & Balwinder Singh, 2008. "An Empirical Analysis of Stock Price-Volume Relationship in Indian Stock Market," Vision, , vol. 12(3), pages 1-13, July.
    5. Aris Kartsaklas, 2018. "Trader Type Effects On The Volatility‐Volume Relationship Evidence From The Kospi 200 Index Futures Market," Bulletin of Economic Research, Wiley Blackwell, vol. 70(3), pages 226-250, July.
    6. An-Sing Chen & Hui-Jyuan Gao & Mark Leung, 2008. "Is Trading Imbalance a Better Explanatory Factor in the Volatility Process? Intraday and Daily Evidence from E-mini S&P 500 Index Futures and Information-Based Hypotheses," Working Papers 0039, College of Business, University of Texas at San Antonio.
    7. Alizadeh, Amir H., 2013. "Trading volume and volatility in the shipping forward freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 250-265.
    8. Geir H. Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2002. "Volume and Volatility in the FX-Market: Does it matter who you are?," CESifo Working Paper Series 786, CESifo.
    9. Alizadeh, Amir H. & Tamvakis, Michael, 2016. "Market conditions, trader types and price–volume relation in energy futures markets," Energy Economics, Elsevier, vol. 56(C), pages 134-149.
    10. Tribhuvan N. Puri & George C. Philippatos, 2008. "Asymmetric Volume‐Return Relation and Concentrated Trading in LIFFE Futures," European Financial Management, European Financial Management Association, vol. 14(3), pages 528-563, June.
    11. Rzayev, Khaladdin & Ibikunle, Gbenga, 2019. "A state-space modeling of the information content of trading volume," Journal of Financial Markets, Elsevier, vol. 46(C).
    12. Mougoué, Mbodja & Aggarwal, Raj, 2011. "Trading volume and exchange rate volatility: Evidence for the sequential arrival of information hypothesis," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2690-2703, October.
    13. Doojin RYU & Hyein SHIM, 2017. "Intraday Dynamics of Asset Returns, Trading Activities, and Implied Volatilities: A Trivariate GARCH Framework," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 45-61, June.
    14. Sensoy, Ahmet & Serdengeçti, Süleyman, 2019. "Intraday volume-volatility nexus in the FX markets: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 1-12.
    15. Antonakakis, Nikolaos & Floros, Christos & Kizys, Renatas, 2016. "Dynamic spillover effects in futures markets: UK and US evidence," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 406-418.
    16. Kao, Yu-Sheng & Chuang, Hwei-Lin & Ku, Yu-Cheng, 2020. "The empirical linkages among market returns, return volatility, and trading volume: Evidence from the S&P 500 VIX Futures," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    17. Rashmi Ranjan Paital & Naresh Kumar Sharma, 2016. "Bid-Ask Spreads, Trading Volume and Return Volatility: Intraday Evidence from Indian Stock Market," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 4(1), pages 24-40.
    18. Haugom, Erik & Ray, Rina, 2017. "Heterogeneous traders, liquidity, and volatility in crude oil futures market," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 36-49.
    19. Hung-Gay Fung & Liuqing Mai & Lin Zhao, 2016. "The effect of nighttime trading of futures markets on information flows: evidence from China," China Finance and Economic Review, Springer, vol. 4(1), pages 1-16, December.
    20. Shahzad, Hassan & Duong, Huu Nhan & Kalev, Petko S. & Singh, Harminder, 2014. "Trading volume, realized volatility and jumps in the Australian stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 414-430.

    More about this item

    Keywords

    Trading volume; Volatility; Sequential information arrival hypothesis; Mixture of distribution hypothesis;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • G0 - Financial Economics - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

    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:ibf:ijbfre:v:4:y:2010:i:3:p:93-101. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Mercedes Jalbert (email available below). General contact details of provider: .

    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.