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Stock return volatility and trading volume: evidence from the chinese stock market

Author

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  • Ping Wang
  • Peijie Wang
  • Aying Liu

Abstract

This study investigates the dynamic relationship between stock return volatility and trading volume for individual stocks listed on the Chinese stock market as well as market portfolios of these stocks. We found that the inclusion of trading volume, which is used as a proxy of information arrival, in the GARCH specification reduces the persistence of the conditional variance dramatically, and the volume effect is positive and statistically significant in all the cases for individual stocks. Consistent with our analysis of the institutional and ownership structure of listed Chinese companies, trading volume is found to play a role of proxies of information arrivals for the two B share portfolios, but not for the two A share portfolios. Our conclusion is that the information-based effect helps in explaining the GARCH effect to a large extent. Nevertheless, GARCH does not completely vanish as a result of this inclusion.

Suggested Citation

  • Ping Wang & Peijie Wang & Aying Liu, 2005. "Stock return volatility and trading volume: evidence from the chinese stock market," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 3(1), pages 39-54.
  • Handle: RePEc:taf:jocebs:v:3:y:2005:i:1:p:39-54
    DOI: 10.1080/14765280500040518
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    References listed on IDEAS

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    1. Lamoureux, Christopher G & Lastrapes, William D, 1990. " Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-229, March.
    2. Su, Dongwei & Fleisher, Belton M., 1999. "Why does return volatility differ in Chinese stock markets?," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 557-586, December.
    3. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
    4. Lee, Bong-Soo & Rui, Oliver M., 2002. "The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 51-78, January.
    5. M. F. Omran & E. McKenzie, 2000. "Heteroscedasticity in stock returns data revisited: volume versus GARCH effects," Applied Financial Economics, Taylor & Francis Journals, vol. 10(5), pages 553-560.
    6. Dongweí Su, 2003. "Risk, Return and Regulation in Chinese Stock Markets," World Scientific Book Chapters,in: Chinese Stock Markets A Research Handbook, chapter 3, pages 75-122 World Scientific Publishing Co. Pte. Ltd..
    7. Lamoureux, Christopher G & Lastrapes, William D, 1994. "Endogenous Trading Volume and Momentum in Stock-Return Volatility," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 253-260, April.
    8. Wang, Ping & Liu, Aying & Wang, Peijie, 2004. "Return and risk interactions in Chinese stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(4), pages 367-383, October.
    9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Citations

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    Cited by:

    1. Kumar, Brajesh & Singh, Priyanka & Pandey, Ajay, 2009. "The Dynamic Relationship between Price and Trading Volume:Evidence from Indian Stock Market," IIMA Working Papers WP2009-12-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. repec:ebl:ecbull:v:7:y:2008:i:15:p:1-16 is not listed on IDEAS
    3. repec:eee:riibaf:v:44:y:2018:i:c:p:88-99 is not listed on IDEAS
    4. Müller, Christian, 2012. "A new interpretation of known facts: The case of two-way causality between trading and volatility," Economic Modelling, Elsevier, vol. 29(3), pages 664-670.
    5. K L Chawla & Pankaj Kumar Gupta, 2014. "Financial Perspectives of Globalization in Emerging Economies ? Concerns for India," Proceedings of Economics and Finance Conferences 0401601, International Institute of Social and Economic Sciences.
    6. Brajesh Kumar & Priyanka Singh & Ajay Pandey, 2010. "The Dynamic Relationship between Price and Trading Volume: Evidence from Indian Stock Market," Working Papers id:2379, eSocialSciences.
    7. Pramod Kumar Naik & Rangan Gupta & Puja Padhi, 2018. "The Relationship Between Stock Market Volatility And Trading Volume: Evidence From South Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(1), pages 99-114, January-M.
    8. Loredana Ureche-Rangau & Fabien Collado & Ulysse Galiay, 2011. "The dynamics of the volatility – trading volume relationship: New evidence from developed and emerging markets," Economics Bulletin, AccessEcon, vol. 31(3), pages 2569-2583.
    9. Kundu, Srikanta & Sarkar, Nityananda, 2016. "Return and volatility interdependences in up and down markets across developed and emerging countries," Research in International Business and Finance, Elsevier, vol. 36(C), pages 297-311.
    10. Shyh-Wei Chen, 2008. "Untangling the nexus of stock price and trading volume: evidence from the Chinese stock market," Economics Bulletin, AccessEcon, vol. 7(15), pages 1-16.
    11. Jawadi Fredj & Ureche-Rangau Loredana, 2013. "Threshold linkages between volatility and trading volume: evidence from developed and emerging markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 313-333, May.

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