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An Empirical Study Of Volatility And Trading Volume Dynamics Using High-Frequency Data

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  • Wen-Cheng Lu
  • Fang-Jun Lin

Abstract

This paper examines the dynamic relationship of volatility and trading volume using a bivariate vector autoregressive methodology. This study found bidirectional causal relations between trading volume and volatility, which is in accordance with sequential information arrival hypothesis that suggests lagged values of trading volume provide the predictability component of current volatility. Findings also reveal that trading volume shocks significantly contribute to the variability of volatility and then volatility shocks partly account for the variability of trading volume.

Suggested Citation

  • Wen-Cheng Lu & Fang-Jun Lin, 2010. "An Empirical Study Of Volatility And Trading Volume Dynamics Using High-Frequency Data," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 93-101.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:93-101
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    References listed on IDEAS

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    More about this item

    Keywords

    Trading volume; Volatility; Sequential information arrival hypothesis; Mixture of distribution hypothesis;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • G0 - Financial Economics - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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