Do trading volumes explain the persistence of GARCH effects?
AbstractWe examine the role of trading volumes in Generalized Autoregressive Conditional Heteroscedasticity (GARCH)-based tests of the Mixture of Distributions Hypothesis (MDH) on firm-level data for the 20 largest Fortune 500 stocks. In doing so, we provide a set of increasingly generalized nested models within which to examine the role of trading volumes, beginning with the AR(1)-GARCH(1,1) model with no trading volumes, progressing to the univariate AR(1)-GARCH(1,1)-X, the AR(1)-GARCH(1,1)-M and the AR(1)-GARCH(1,1)-M-X models, the constant correlation bivariate AR(1)-GARCH(1,1)-M-X model, and culminating with the Dynamic Equicorrelation-GARCH (DECO-GARCH) model. Amongst our main findings, the trading volumes are robustly significant and positively signed in the volatility of returns equations for most firms, acting to reduce the persistence and to eliminate the need for GARCH terms. As we progress from the AR(1)-GARCH(1,1) to the AR(1)-GARCH(1,1)-X, AR(1)-GARCH(1,1)-M-X and the bivariate AR(1)-GARCH(1,1)-M-X models, the persistence parameters decline from an average of 0.987 to 0.143, 0.206 and 0.141 respectively. Our results are robust and consistent with the MDH in most cases.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 22 (2012)
Issue (Month): 23 (December)
Contact details of provider:
Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.