Surprise volume and heteroskedasticity in equity market returns
AbstractHeterosedasticity in returns may be explainable by trading volume. We use different volume variables, including surprise volume - i.e. unexpected above-avergae trading activity - which is derived from uncorrelated volume innovations. Assuming eakly exogenous volume, we extend the Lamoureux and Lastrapes (1990) model by an asymmetric GARCH in-mean specification following Golstein et al. (1993). Model estimation for the U.S. as well as six large equity markets shows that surprise volume 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. --
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Bibliographic InfoPaper provided by Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München in its series CEFS Working Paper Series with number 2004-03.
Date of creation: 2004
Date of revision:
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
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