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Time-varying cross-correlation between trading volume and returns in US stock markets

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  • Rodriguez, E.
  • Alvarez-Ramirez, J.

Abstract

This paper used detrended cross-correlation analysis (DCCA) to study contemporaneous co-movements between trading volume and returns in US stock markets (Dow Jones, Nasdaq and Standard & Poor-500). It was found that cross-correlations are not constant, but exhibit important variations with time and scale (i.e., horizon). It was argued that the complexity of the behavior of cross-correlations is in line with the adaptive market hypothesis (AMH), which states that the behavior of the market participants evolves to adapt to changing market conditions. An interesting result is that cross-correlations are positive for early periods (from 1950 to late 2000s), and shifted to negative cross-correlations in the recent two decades, a transition that may be linked to changes in the long-term risk aversion of market participants.

Suggested Citation

  • Rodriguez, E. & Alvarez-Ramirez, J., 2021. "Time-varying cross-correlation between trading volume and returns in US stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 581(C).
    • Handle: RePEc:eee:phsmap:v:581:y:2021:i:c:s0378437121004842
    DOI: 10.1016/j.physa.2021.126211
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    Cited by:

    1. Meraz, M. & Alvarez-Ramirez, J. & Rodriguez, E., 2022. "Multivariate rescaled range analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 589(C).

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