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Further insights on the relationship between SP500, VIX and volume: a new asymmetric causality test

Author

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  • Catherine Kyrtsou
  • Dimitris Kugiumtzis
  • Angeliki Papana

Abstract

In the aim to explore the complex relationships between S&P500, VIX and volume we introduce a Granger causality test using the nonlinear statistic of Asymmetric Partial Transfer Entropy (APTE). Through a simulation exercise, it arises that the APTE offers precise information on the nature of the connectivity. Our empirical findings concretize the information flow that links volume, S&P500 and VIX, and merge the leverage effect and the asymmetric stock return-volume relationship into a unified framework of analysis. More specifically, when we condition on the tails, the detected causal channel provides empirical validation of the noise trading contribution to large swings in financial markets, because of the increase of trading volume and the subsequent worsening ability of market prices to adjust to new information.

Suggested Citation

  • Catherine Kyrtsou & Dimitris Kugiumtzis & Angeliki Papana, 2019. "Further insights on the relationship between SP500, VIX and volume: a new asymmetric causality test," The European Journal of Finance, Taylor & Francis Journals, vol. 25(15), pages 1402-1419, October.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1402-1419
    DOI: 10.1080/1351847X.2019.1599406
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    Cited by:

    1. Nie, Chun-Xiao, 2023. "Time-varying characteristics of information flow networks in the Chinese market: An analysis based on sector indices," Finance Research Letters, Elsevier, vol. 54(C).
    2. Panpan Wang & Tsungwu Ho & Yishi Li, 2020. "The Price-Volume Relationship of the Shanghai Stock Index: Structural Change and the Threshold Effect of Volatility," Sustainability, MDPI, vol. 12(8), pages 1-17, April.
    3. Weibo Li & Wei Liu & Lei Wu & Xue Guo, 2021. "Risk spillover networks in financial system based on information theory," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-20, June.

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