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

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Listed author(s):
  • Kumar, Brajesh
  • Singh, Priyanka
  • Pandey, Ajay
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    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 we examine the dynamic relation between returns and volume using VAR, Granger causality, variance decomposition (VD) and impulse response function (IRF). Mixture of Distributions Hypothesis (MDH), which tests the GARCH vs. Volume effect, is also studied between the conditional volatility and volume. The results show that there is positive and asymmetric relation between volume and price changes. Further the results of VAR and Granger causality show that there is a bi-directional relation between volume and returns. However, the results of VD imply weak dynamic relation between returns and volume which becomes more evident from the plots of IRF. On MDH, our results are mixed, neither entirely rejecting the MDH nor giving it an unconditional support.

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    Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2009-12-04.

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    Date of creation: 23 Dec 2009
    Handle: RePEc:iim:iimawp:9354
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