Surprise Volume and Heteroskedasticity in Equity Market Returns
AbstractHeteroskedasticity in returns may be explainable by trading volume. We use different volume variables, including surprise volume---i.e. unexpected above-average trading activity---which is derived from uncorrelated volume innovations. Assuming weakly exogenous volume, we extend the Lamoureux and Lastrapes (1990) model by an asymmetric GARCH in-mean specification following Golsten et al. (1993). Model estimation for the U.S. as well as six large equity markets shows that surprise volume provides superior model fit and helps to explain volatility persistence as well as excess kurtosis. Surprise volume reveals a significant positive market risk premium, asymmetry, and a surprise volume effect in conditional variance. The findings suggest that, e.g., a surprise volume shock (breakdown)---i.e. large (small) contemporaneous and small (large) lagged surprise volume---relates to increased (decreased) conditional market variance and return.
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.
Bibliographic InfoPaper provided by EconWPA in its series Econometrics with number 0409009.
Date of creation: 15 Sep 2004
Date of revision:
Note: Type of Document - none; prepared on win; to print on hp;
Contact details of provider:
Web page: http://126.96.36.199
ARCH; trading volume; return volume dependence; asymmetric volatility; market risk premium; leverage effect;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-CFN-2004-09-30 (Corporate Finance)
- NEP-ETS-2004-09-30 (Econometric Time Series)
- NEP-FIN-2004-09-30 (Finance)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jianxin Wang, 2007. "Foreign Ownership and Volatility Dynamics of Indonesian Stocks," Asia-Pacific Financial Markets, Springer, vol. 14(3), pages 201-210, September.
- Heejoon Han & Dennis Kristensen, 2012.
"Asymptotic Theory for the QMLE in GARCH-X Models with Stationary and Non-Stationary Covariates,"
CREATES Research Papers
2012-25, School of Economics and Management, University of Aarhus.
- Heejoon Han & Dennis Kristensen, 2013. "Asymptotic theory for the QMLE in GARCH-X models with stationary and non-stationary covariates," CeMMAP working papers CWP18/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- José Dias Curto & João Tomaz & José Castro Pinto, 2009. "A new approach to bad news effects on volatility: the multiple-sign-volume sensitive regime EGARCH model (MSV-EGARCH)," Portuguese Economic Journal, Springer, vol. 8(1), pages 23-36, April.
- Loredana Ureche-Rangau & Fabien Collado & Ulysse Galiay, 2011. "The dynamics of the volatility – trading volume relationship: New evidence from developed and emerging markets," Economics Bulletin, AccessEcon, vol. 31(3), pages 2569-2583.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.