Causality in Quantiles and Dynamic Stock Return-Volume Relations
This paper investigates the causal relations between stock return and volume based on quantile regressions. We first define Granger non-causality in all quantiles and propose testing non-causality by a sup-Wald test. Such a test is consistent against any deviation from non-causality in distribution, as opposed to the existing tests that check only noncausality in certain moment. This test is readily extended to test non-causality in different quantile ranges, and the testing results enable us to identify the quantile range for which causality is relevant. In the empirical studies of 3 major stock market indices, we find that, while the conventional test suggests no causality in mean, there are strong evidences that lagged volume Granger causes return in all but some middle quantiles. In particular, the causal effects have opposite signs at lower and upper quantiles and are stronger at more extreme quantiles. These relations form (symmetric) V shapes across quantiles. They also show that the dispersion of the return distribution increases with volume so that volume has a positive effect on return volatility. It is also shown that the quantile causal effects of lagged return on volume are mainly negative.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Phone: 886-2-27822791|
Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- 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.
- Campbell, John Y & Grossman, Sanford J & Wang, Jiang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 905-39, November.
- Wang, Jiang & Grossman, Sanford & Campbell, John, 1993. "Trading Volume and Serial Correlation in Stock Returns," Scholarly Articles 3128710, Harvard University Department of Economics.
- 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.
- Jennings, Robert H & Starks, Laura T & Fellingham, John C, 1981. "An Equilibrium Model of Asset Trading with Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 36(1), pages 143-61, March.
- 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 221-29, March.
- Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
- Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-68, February.
- Diks, C.G.H. & Panchenko, V., 2004.
"A note on the Hiemstra-Jones test for Granger non-causality,"
CeNDEF Working Papers
04-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Diks Cees & Panchenko Valentyn, 2005. "A Note on the Hiemstra-Jones Test for Granger Non-causality," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(2), pages 1-9, June.
- Donald W.K. Andrews, 1990.
"Tests for Parameter Instability and Structural Change with Unknown Change Point,"
Cowles Foundation Discussion Papers
943, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
- Su, Liangjun & White, Halbert, 2007.
"A consistent characteristic function-based test for conditional independence,"
Journal of Econometrics,
Elsevier, vol. 141(2), pages 807-834, December.
- Su, Liangjun & White, Halbert, 2003. "A Consistent Characteristic-Function-Based Test for Conditional Independence," University of California at San Diego, Economics Working Paper Series qt4dv0837f, Department of Economics, UC San Diego.
- Jennings, Robert H. & Barry, Christopher B., 1983. "Information Dissemination and Portfolio Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(01), pages 1-19, March.
- 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 305-21, March.
- Hutson, Elaine & Kearney, Colm & Lynch, Margaret, 2008.
"Volume and skewness in international equity markets,"
Journal of Banking & Finance,
Elsevier, vol. 32(7), pages 1255-1268, July.
- Colm Kearney & Margaret Lynch, 2005. "Volume and Skewness in International Equity Markets," The Institute for International Integration Studies Discussion Paper Series iiisdp043, IIIS.
- Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September.
- 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 153-73, August.
- Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
- 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.
- Eleanor Xu, Xiaoqing & Chen, Peter & Wu, Chunchi, 2006. "Time and dynamic volume-volatility relation," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1535-1558, May.
- 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.
- Ciner, Cetin, 2002. " The Stock Price-Volume Linkage on the Toronto Stock Exchange: Before and after Automation," Review of Quantitative Finance and Accounting, Springer, vol. 19(4), pages 335-49, December.
- 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.
- Cheung, Yin-Wong & Ng, Lilian K., 1996. "A causality-in-variance test and its application to financial market prices," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 33-48.
- 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.
- Granger, C. W. J., 1980. "Testing for causality : A personal viewpoint," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 329-352, May.
- Suominen, Matti, 2001. "Trading Volume and Information Revelation in Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 545-565, December.
- 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.
- Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
- 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.
- Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
When requesting a correction, please mention this item's handle: RePEc:sin:wpaper:07-a006. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HsiaoyunLiu)
If references are entirely missing, you can add them using this form.