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The Empirical Relationship Between Stock Returns, Return Volatility and Trading Volume in the Brazilian Stock Market

Author

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  • Otavio Ribeiro de Medeiros

    (University of Brasilia)

  • Bernardus Ferdinandus Nazar Van Doornik

    (Brazil Central Bank)

Abstract

We investigate the empirical relationship between stock returns, return volatility and trading volume in the Brazilian stock market (Bovespa). Our sample contains stock return and trading volume data from a theoretical portfolio including stocks participating in the Bovespa Index (Ibovespa) extending from 01/03/2000 through 12/29/2005. The empirical methods used include cross-correlation analysis, unit-root tests, bivariate simultaneous equations regression analysis, GARCH and VAR models, and Granger causality tests. We find support for a contemporaneous as well as a dynamic relationship between stock returns and trading volume, implying that forecasts of one of these variables can be only slightly improved by knowledge of the other. Besides, our results indicate that contemporaneous and dynamic relationships between return volatility and trading volume also exist. Additionally, by applying Granger’s causality test, we find that return volatility contains information about upcoming trading volume and vice versa.

Suggested Citation

  • Otavio Ribeiro de Medeiros & Bernardus Ferdinandus Nazar Van Doornik, 2008. "The Empirical Relationship Between Stock Returns, Return Volatility and Trading Volume in the Brazilian Stock Market," Brazilian Business Review, Fucape Business School, vol. 5(1), pages 01-17, January.
    • Handle: RePEc:bbz:fcpbbr:v:5:y:2008:i:1:p:01-17
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    References listed on IDEAS

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    1. Lee, Bong-Soo & Rui, Oliver M., 2002. "The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 51-78, January.
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    Cited by:

    1. Rashmi Ranjan Paital & Naresh Kumar Sharma, 2016. "Bid-Ask Spreads, Trading Volume and Return Volatility: Intraday Evidence from Indian Stock Market," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 4(1), pages 24-40.
    2. Bajzik, Josef, 2021. "Trading volume and stock returns: A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 78(C).
    3. Dumitriu, Ramona & Stefanescu, Razvan & Nistor, Costel, 2011. "Changes in the dynamic relation between the prices and the trading volume from the Bucharest stock exchange," MPRA Paper 41602, University Library of Munich, Germany, revised 20 Mar 2011.
    4. Karima Saci, 2022. "Modelling the Relationship Between Trading Volume and Stock Returns Volatility for Islamic and Conventional Banks: The Case of Saudi Arabia نمذجة العلاقة بين حجم التداول وتقلب عوائد الأسهم للبنوك الإس," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 35(1), pages 41-55, January.
    5. 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;Japanese Association of Financial Economics and Engineering, vol. 18(3), pages 291-317, September.
    6. Gurleen Sahota & Balwinder Singh, 2016. "The Empirical Investigation of Causal Relationship between Intraday Return and Volume in Indian Stock Market," Vision, , vol. 20(3), pages 199-210, September.

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