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Volume, volatility, and leverage: A dynamic analysis

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  • Tauchen, George
  • Zhang, Harold
  • Liu, Ming

Abstract

This paper uses dynamic impulse response analysis to investigate the interrelationships among stock price volatility, trading volume, and the leverage effect. Dynamic impulse response analysis is a technique for analyzing the multistep ahead characteristics of a nonparametric estimate of the one-step conditional density of a strictly stationary process. The technique is the generalization to a nonlinear process of Sims-style impulse response analysis for lienar models. In this paper, we refine the technique and apply it to a long panel of daily observations on the price and trading volume of four stocks actively traded on the NYSE: Boeing, Coca Cola, IBM, and MMM.
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Suggested Citation

  • Tauchen, George & Zhang, Harold & Liu, Ming, 1996. "Volume, volatility, and leverage: A dynamic analysis," Journal of Econometrics, Elsevier, vol. 74(1), pages 177-208, September.
  • Handle: RePEc:eee:econom:v:74:y:1996:i:1:p:177-208
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    5. Christie, Andrew A., 1982. "The stochastic behavior of common stock variances : Value, leverage and interest rate effects," Journal of Financial Economics, Elsevier, vol. 10(4), pages 407-432, December.
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    7. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
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    9. Blake LeBaron, "undated". "Persistence of the Dow Jones Index on Rising Volume," Working papers _006, University of Wisconsin - Madison.
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    12. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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