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Dynamic Linkages Between Trading Volume and Price Movements: Evidence for Small Firm Stocks

  • Cetin Ciner

    (Northeastern University)

Registered author(s):

    Recent theoretical and empirical studies suggest that volume conveys useful information to forecast stock price movements. We investigate the information content of volume for the stock indices of small-capitalization firms in the US and France. Information asymmetry problems tend to be more important for small-capitalization firms and it can be argued that the information content of volume should be more significant. We find that volume does indeed forecast returns of the small-capitalization stock indices. We also detect a positive contemporaneous relation between volume and absolute value of returns. The findings are qualitatively the same for data from the US and France.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2003-08-1-f-ciner.pdf
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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 8 (2003)
    Issue (Month): 1 (Spring)
    Pages: 87-102

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    Handle: RePEc:pep:journl:v:8:y:2003:i:1:p:87-102
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    1. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
    2. Boudoukh, Jacob & Richardson, Matthew P & Whitelaw, Robert F, 1994. "A Tale of Three Schools: Insights on Autocorrelations of Short-Horizon Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 539-73.
    3. Conrad, Jennifer S & Hameed, Allaudeen & Niden, Cathy, 1994. " Volume and Autocovariances in Short-Horizon Individual Security Returns," Journal of Finance, American Finance Association, vol. 49(4), pages 1305-29, September.
    4. Lee, Cheng F & Rui, Oliver M, 2000. " Does Trading Volume Contain Information to Predict Stock Returns? Evidence from China's Stock Markets," Review of Quantitative Finance and Accounting, Springer, vol. 14(4), pages 341-60, June.
    5. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1992. "Trading Volume and Serial Correlation in Stock Returns," NBER Working Papers 4193, National Bureau of Economic Research, Inc.
    6. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    7. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
    8. Cooper, Michael, 1999. "Filter Rules Based on Price and Volume in Individual Security Overreaction," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 901-35.
    9. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    10. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-64, December.
    11. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1992. "Stock Prices and Volume," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 199-242.
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    14. Tarun Chordia & Bhaskaran Swaminathan, 2000. "Trading Volume and Cross-Autocorrelations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(2), pages 913-935, 04.
    15. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    16. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-68, September.
    17. Geweke, John & Meese, Richard & Dent, Warren, 1983. "Comparing alternative tests of causality in temporal systems : Analytic results and experimental evidence," Journal of Econometrics, Elsevier, vol. 21(2), pages 161-194, February.
    18. Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March.
    19. Silvapulle, Param & Choi, Jong-Seo, 1999. "Testing for linear and nonlinear granger causality in the stock price-volume relation: Korean evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(1), pages 59-76.
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