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Trading activity, realized volatility and jumps

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  • GIOT, Pierre
  • LAURENT, Sébastien
  • PETITJEAN, Mikael

Abstract

This paper takes a new look at the relation between volume and realized volatility. In contrast to prior studies, we decompose realized volatility into two major components: a continuously varying component and a discontinuous jump component. Our results confirm that the number of trades is the dominant factor shaping the volume-volatility relation, whatever the volatility component considered. However, we also show that the decomposition of realized volatility bears on the volume-volatility relation. Trade variables are positively related to the continuous component only. The well-documented positive volume-volatility relation does not hold for jumps.

(This abstract was borrowed from another version of this item.)

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File URL: http://dx.doi.org/10.1016/j.jempfin.2009.07.001
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2223.

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Handle: RePEc:cor:louvrp:-2223

Note: In : Journal of Empirical Finance, 17(1), 168-175, 2010
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References

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  1. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2007. "Jumps, cojumps and macro announcements," Working Papers 2007-032, Federal Reserve Bank of St. Louis.
  2. Gabriele Fiorentini & Giorgio Calzolari, 1997. "A tobit model with garch errors," Working Papers. Serie AD 1997-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
  4. Harris, Lawrence, 1987. "Transaction Data Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 127-141, June.
  5. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
  6. Huang, Roger D. & Masulis, Ronald W., 2003. "Trading activity and stock price volatility: evidence from the London Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 10(3), pages 249-269, May.
  7. Easley, David & Kiefer, Nicholas M & O'Hara, Maureen, 1997. "One Day in the Life of a Very Common Stock," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 805-35.
  8. Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Power and bipower variation with stochastic volatility and jumps," Economics Papers 2003-W17, Economics Group, Nuffield College, University of Oxford.
  9. Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Chan, Kalok & Fong, Wai-Ming, 2000. "Trade size, order imbalance, and the volatility-volume relation," Journal of Financial Economics, Elsevier, vol. 57(2), pages 247-273, August.
  11. Neil Shephard & Ole Barndorff-Nielsen, 2003. "Econometrics of testing for jumps in financial economics using bipower variation," Economics Series Working Papers 2004-FE-01, University of Oxford, Department of Economics.
  12. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06.
  13. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  14. Chan, Choon Chat & Fong, Wai Mun, 2006. "Realized volatility and transactions," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2063-2085, July.
  15. Tarun Chordia, 2001. "Market Liquidity and Trading Activity," Journal of Finance, American Finance Association, vol. 56(2), pages 501-530, 04.
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Citations

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Cited by:
  1. Faten Ben Slimane, 2012. "Stock exchange consolidation and return volatility," Managerial Finance, Emerald Group Publishing, vol. 38(6), pages 606-627, May.
  2. Julien Chevallier & Benoît Sévi, 2011. "On the volatility-volume relationship in energy futures markets using intraday data," EconomiX Working Papers 2011-16, University of Paris West - Nanterre la Défense, EconomiX.
  3. Jan Novotny, 2010. "Were Stocks during the Financial Crisis More Jumpy: A Comparative Study," CERGE-EI Working Papers wp416, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Boudt, Kris & Petitjean, Mikael, 2014. "Intraday liquidity dynamics and news releases around price jumps: Evidence from the DJIA stocks," Journal of Financial Markets, Elsevier, vol. 17(C), pages 121-149.
  5. Rossi, Eduardo & Santucci de Magistris, Paolo, 2013. "Long memory and tail dependence in trading volume and volatility," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 94-112.
  6. Rosa, Carlo, 2013. "The financial market effect of FOMC minutes," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 67-81.
  7. Jan Hanousek & Evzen Kocenda & Jan Novotny, 2014. "Price jumps on European stock markets," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(1), pages 10-22, March.
  8. Hynek Lavicka & Tomas Lichard & Jan Novotny, 2014. "Sand in the Wheels or Wheels in the Sand? Tobin Taxes and Market Crashes," CERGE-EI Working Papers wp511, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  9. Jan Novotny, 2010. "Price Jumps in Visegrad Country Stock Markets: An Empirical Analysis," CERGE-EI Working Papers wp412, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Benoît Sévi & César Baena, 2012. "A reassessment of the risk-return tradeoff at the daily horizon," Economics Bulletin, AccessEcon, vol. 32(1), pages 190-203.
  11. Louhichi, Waël, 2011. "What drives the volume-volatility relationship on Euronext Paris?," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 200-206, August.
  12. Benoît Sévi & César Baena, 2013. "The explanatory power of signed jumps for the risk-return tradeoff," Economics Bulletin, AccessEcon, vol. 33(2), pages 1029-1046.
  13. Evans, Kevin P., 2011. "Intraday jumps and US macroeconomic news announcements," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2511-2527, October.
  14. Vortelinos, Dimitrios I., 2010. "The properties of realized correlation: Evidence from the French, German and Greek equity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 273-290, August.
  15. Carlo Rosa, 2013. "The high-frequency response of energy prices to monetary policy: understanding the empirical evidence," Staff Reports 598, Federal Reserve Bank of New York.
  16. Kerr Hatrick & Mike So & S. Chung & R. Deng, 2011. "Dynamic Relationship among Intraday Realized Volatility, Volume and Number of Trades," Asia-Pacific Financial Markets, Springer, vol. 18(3), pages 291-317, September.

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