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New Insights on the Trading Volume–Return Relationship: Evidence from the Three Largest Stock Exchanges

In: Economic Growth and Financial Development

Author

Listed:
  • Victor Troster

    (Universitat de les Illes Balears)

  • André M. Marques

    (Federal University of Paraíba)

  • Muhammad Shahbaz

    (Beijing Institute of Technology)

Abstract

This chapter uncovers new insights on the dynamic volume–return relationship. We verify whether non-informational or informational trading can explain the volume–return relation in the three largest stock exchanges. We apply the cross-quantilogram approach to investigate the directional predictability from volume to returns across different market states. Besides, we consider nonlinearities and asymmetries in the volume–return relationship. We report evidence that the volume–return relationship is asymmetric and nonlinear across different market phases. Our results are consistent with models based on asymmetric information and overreaction to news among investors, where prevalent informational (non-informational) trading leads to negative (positive) volume–return causality. Our findings have important policy implications for risk managers, who may use the predictability from past volume to future returns for developing optimal hedging strategies.

Suggested Citation

  • Victor Troster & André M. Marques & Muhammad Shahbaz, 2021. "New Insights on the Trading Volume–Return Relationship: Evidence from the Three Largest Stock Exchanges," Springer Books, in: Muhammad Shahbaz & Alaa Soliman & Subhan Ullah (ed.), Economic Growth and Financial Development, pages 179-204, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-79003-5_10
    DOI: 10.1007/978-3-030-79003-5_10
    as

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