IDEAS home Printed from https://ideas.repec.org/p/ess/wpaper/id2379.html
   My bibliography  Save this paper

The Dynamic Relationship between Price and Trading Volume: Evidence from Indian Stock Market

Author

Listed:
  • Brajesh Kumar

Abstract

This study investigates the nature of relationship between price and trading volume for 50 Indian stocks. Firstly the contemporaneous and asymmetric relation between price and volume are examined. Then the dynamic relation between returns and volume using VAR, Granger causality, variance decomposition (VD) and impulse response function (IRF) are examined. Mixture of Distributions Hypothesis (MDH), which tests the GARCH vs. Volume effect, is also studied between the conditional volatility and volume. [IIMA WP No. 2009-12-04].

Suggested Citation

  • Brajesh Kumar, 2010. "The Dynamic Relationship between Price and Trading Volume: Evidence from Indian Stock Market," Working Papers id:2379, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2379
    as

    Download full text from publisher

    File URL: http://www.eSocialSciences.com/data/articles/Document12512010400.2685358.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
    2. Giampiero Gallo & Barbara Pacini, 2000. "The effects of trading activity on market volatility," The European Journal of Finance, Taylor & Francis Journals, vol. 6(2), pages 163-175.
    3. Jennings, Robert H. & Barry, Christopher B., 1983. "Information Dissemination and Portfolio Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 1-19, March.
    4. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
    5. Harris, Lawrence, 1986. "Cross-Security Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(1), pages 39-46, March.
    6. Epps, Thomas W & Epps, Mary Lee, 1976. "The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis," Econometrica, Econometric Society, vol. 44(2), pages 305-321, March.
    7. Morse, Dale, 1980. "Asymmetrical Information in Securities Markets and Trading Volume," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(5), pages 1129-1148, December.
    8. Ané, Thierry & Ureche-Rangau, Loredana, 2008. "Does trading volume really explain stock returns volatility?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(3), pages 216-235, July.
    9. He, Hua & Wang, Jiang, 1995. "Differential Information and Dynamic Behavior of Stock Trading Volume," The Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 919-972.
    10. 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(1), pages 109-126, March.
    11. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    12. T. Ane & L. Ureche-Rangau, 2008. "Does Trading Volume Really Explain Stock Returns Volatility ?," Post-Print hal-00260668, HAL.
    13. Pyun, Chong Soo & Lee, Sa Young & Nam, Kiseok, 2000. "Volatility and information flows in emerging equity market: A case of the Korean Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 9(4), pages 405-420.
    14. Bohl, Martin T. & Henke, Harald, 2003. "Trading volume and stock market volatility: The Polish case," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 513-525.
    15. Huang, Bwo-Nung & Yang, Chin-Wei, 2001. "An empirical investigation of trading volume and return volatility of the Taiwan Stock Market," Global Finance Journal, Elsevier, vol. 12(1), pages 55-77.
    16. Assogbavi, T. & Khoury, N. & Yourougou, P., 1995. "Short interest and the asymmetry of the price-volume relationship in the Canadian stock market," Journal of Banking & Finance, Elsevier, vol. 19(8), pages 1341-1358, November.
    17. Abdullah, Dewan A & Rangazas, Peter C, 1988. "Money and the Business Cycle: Another Look," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 680-685, November.
    18. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    19. 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.
    20. Kim, Dongcheol & Kon, Stanley J, 1994. "Alternative Models for the Conditional Heteroscedasticity of Stock Returns," The Journal of Business, University of Chicago Press, vol. 67(4), pages 563-598, October.
    21. Varian, Hal R, 1985. "Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-317, March.
    22. 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.
    23. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," The Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
    24. Smirlock, Michael & Starks, Laura, 1988. "An empirical analysis of the stock price-volume relationship," Journal of Banking & Finance, Elsevier, vol. 12(1), pages 31-41, March.
    25. Michael Smirlock & Laura Starks, 1985. "A Further Examination Of Stock Price Changes And Transaction Volume," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 8(3), pages 217-226, September.
    26. 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.
    27. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    28. Ólan T. Henry & Michael McKenzie, 2006. "The Impact of Short Selling on the Price-Volume Relationship: Evidence from Hong Kong," The Journal of Business, University of Chicago Press, vol. 79(2), pages 671-692, March.
    29. Saatcioglu, Kemal & Starks, Laura T., 1998. "The stock price-volume relationship in emerging stock markets: the case of Latin America," International Journal of Forecasting, Elsevier, vol. 14(2), pages 215-225, June.
    30. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-168, February.
    31. 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.
    32. Arago, Vicent & Nieto, Luisa, 2005. "Heteroskedasticity in the returns of the main world stock exchange indices: volume versus GARCH effects," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(3), pages 271-284, July.
    33. Epps, Thomas W, 1975. "Security Price Changes and Transaction Volumes: Theory and Evidence," American Economic Review, American Economic Association, vol. 65(4), pages 586-597, September.
    34. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    35. Karpoff, Jonathan M, 1986. "A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-1087, December.
    36. 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 153-181, March.
    37. Chen, Gong-meng & Firth, Michael & Rui, Oliver M, 2001. "The Dynamic Relation between Stock Returns, Trading Volume, and Volatility," The Financial Review, Eastern Finance Association, vol. 36(3), pages 153-173, August.
    38. 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 1639-1664, December.
    39. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
    40. Lange, Stephen, 1999. "Modeling asset market volatility in a small market:: Accounting for non-synchronous trading effects," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 1-18, January.
    41. Harris, Lawrence, 1987. "Transaction Data Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(2), pages 127-141, June.
    42. 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 1149-1168, September.
    43. Moosa, Imad A. & Al-Loughani, Nabeel E., 1995. "Testing the price-volume relation in emerging Asian stock markets," Journal of Asian Economics, Elsevier, vol. 6(3), pages 407-422.
    44. Andersen, Torben G, 1996. "Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility," Journal of Finance, American Finance Association, vol. 51(1), pages 169-204, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. 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.
    4. Sarika Mahajan & Balwinder Singh, 2008. "An Empirical Analysis of Stock Price-Volume Relationship in Indian Stock Market," Vision, , vol. 12(3), pages 1-13, July.
    5. Chen, Gong-meng & Firth, Michael & Rui, Oliver M, 2001. "The Dynamic Relation between Stock Returns, Trading Volume, and Volatility," The Financial Review, Eastern Finance Association, vol. 36(3), pages 153-173, August.
    6. Farag, Hisham & Cressy, Robert, 2011. "Do regulatory policies affect the flow of information in emerging markets?," Research in International Business and Finance, Elsevier, vol. 25(3), pages 238-254, September.
    7. Ashok Chanabasangouda Patil & Shailesh Rastogi, 2019. "Time-Varying Price–Volume Relationship and Adaptive Market Efficiency: A Survey of the Empirical Literature," JRFM, MDPI, vol. 12(2), pages 1-18, June.
    8. Kao, Yu-Sheng & Chuang, Hwei-Lin & Ku, Yu-Cheng, 2020. "The empirical linkages among market returns, return volatility, and trading volume: Evidence from the S&P 500 VIX Futures," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    9. Anirut Pisedtasalasai & Abeyratna Gunasekarage, 2007. "Causal and Dynamic Relationships among Stock Returns, Return Volatility and Trading Volume: Evidence from Emerging markets in South-East Asia," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 14(4), pages 277-297, December.
    10. Sinha, Pankaj & Agnihotri, Shalini, 2014. "Investigating impact of volatility persistence, market asymmetry and information inflow on volatility of stock indices using bivariate GJR-GARCH," MPRA Paper 58303, University Library of Munich, Germany.
    11. Kao, Yu-Sheng & Zhao, Kai & Chuang, Hwei-Lin & Ku, Yu-Cheng, 2024. "The asymmetric relationships between the Bitcoin futures’ return, volatility, and trading volume," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 524-542.
    12. Slim, Skander & Dahmene, Meriam, 2016. "Asymmetric information, volatility components and the volume–volatility relationship for the CAC40 stocks," Global Finance Journal, Elsevier, vol. 29(C), pages 70-84.
    13. Chuang, Wen-I & Liu, Hsiang-Hsi & Susmel, Rauli, 2012. "The bivariate GARCH approach to investigating the relation between stock returns, trading volume, and return volatility," Global Finance Journal, Elsevier, vol. 23(1), pages 1-15.
    14. Karaa, Rabaa & Slim, Skander & Hmaied, Dorra Mezzez, 2018. "Trading intensity and the volume-volatility relationship on the Tunis Stock Exchange," Research in International Business and Finance, Elsevier, vol. 44(C), pages 88-99.
    15. Eric Girard & Mohammed Omran, 2009. "On the relationship between trading volume and stock price volatility in CASE," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 5(1), pages 110-134, February.
    16. 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.
    17. Kausik Chaudhuri & Alok Kumar, 2015. "A Markov-Switching Model for Indian Stock Price and Volume," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(3), pages 239-257, December.
    18. Mougoué, Mbodja & Aggarwal, Raj, 2011. "Trading volume and exchange rate volatility: Evidence for the sequential arrival of information hypothesis," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2690-2703, October.
    19. Doojin RYU & Hyein SHIM, 2017. "Intraday Dynamics of Asset Returns, Trading Activities, and Implied Volatilities: A Trivariate GARCH Framework," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 45-61, June.
    20. Chuang, Chia-Chang & Kuan, Chung-Ming & Lin, Hsin-Yi, 2009. "Causality in quantiles and dynamic stock return-volume relations," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1351-1360, July.

    More about this item

    Keywords

    Indian stocks; Trading volume; Volatility; Mixture of distributions hypothesis; GARCH; Granger; Causality; VAR; Impulse response function; Variance decomposition;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ess:wpaper:id:2379. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Padma Prakash (email available below). General contact details of provider: http://www.esocialsciences.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.