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ARCH effects, trading volume and the information flow interpretation: empirical evidence from the Chinese stock markets

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  • Renzeng Wang
  • Jean J. Chen

Abstract

This study revisits the relation between ARCH effects and trading volume. We extend the specification of the VA-GARCH (1, 1) model by using various volume variants and constructing contrast equity groups. We verify that the information flow assumed to be contained in the four trading volume variants has a starkly different explanatory power compared with the ARCH effects. Successive improvement of the model's empirical fit and the reduction of the fat-tailedness in the model residuals in the sequence of volume adjustment imply an increase in the strength of explaining the static aspects of volatility dynamics by the further adjusted volume variants.

Suggested Citation

  • Renzeng Wang & Jean J. Chen, 2012. "ARCH effects, trading volume and the information flow interpretation: empirical evidence from the Chinese stock markets," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(2), pages 169-191, January.
    • Handle: RePEc:taf:jocebs:v:10:y:2012:i:2:p:169-191
    DOI: 10.1080/14765284.2012.673782
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    Cited by:

    1. Ahmed, Walid M.A., 2017. "The impact of foreign equity flows on market volatility during politically tranquil and turbulent times: The Egyptian experience," Research in International Business and Finance, Elsevier, vol. 40(C), pages 61-77.

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