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How does trading volume affect financial return distributions?

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  • Do, Hung Xuan
  • Brooks, Robert
  • Treepongkaruna, Sirimon
  • Wu, Eliza

Abstract

We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.

Suggested Citation

  • Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon & Wu, Eliza, 2014. "How does trading volume affect financial return distributions?," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 190-206.
  • Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:190-206
    DOI: 10.1016/j.irfa.2014.09.003
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    1. repec:eee:eneeco:v:66:y:2017:i:c:p:399-410 is not listed on IDEAS
    2. Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon & Wu, Eliza, 2016. "Stock and currency market linkages: New evidence from realized spillovers in higher moments," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 167-185.
    3. Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon, 2015. "Realized spill-over effects between stock and foreign exchange market: Evidence from regional analysis," Global Finance Journal, Elsevier, vol. 28(C), pages 24-37.

    More about this item

    Keywords

    Intraday data; Higher moments; Information theory; Fractional integrated VAR;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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