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The testing of causal stock returns-trading volume dependencies with the aid of copulas

Author

Listed:
  • Henryk Gurgul

    (AGH University of Science and Technology in Cracow, Department of Applications of Mathematics in Economics)

  • Roland Mestel

    (University of Applied Sciences Joanneum in Graz, Department of Banking and Insurance)

  • Robert Syrek

    (Jagiellonian University in Cracow, Institute of Economics and Management)

Abstract

This paper is concerned with a dependence analysis of returns, return volatility and trading volume for five companies listed on the Vienna Stock Exchange. Taking into account the high frequency data for these companies, tests based on a comparison of Bernstein copula densities using the Hellinger distance were conducted. It is worth noting that these tests can be used in general settings since there is no restrietion on the dimension of the data. The parameter which must be set up for the testing procedure is a bandwidth. It is necessary for estimation of the nonparametric copula. The paper presents some patterns of causal relationships between stock returns, realized volatility and expected and unexpected trading volume. There is linear causality running from realized volatility to expected trading volume, and a lack of nonlinear dependence in the opposite direction. The authors detected strong linear and nonlinear causality from stock returns to expected trading volume. Therefore, a knowledge of past stock returns can improve forecasts of expected trading volume. They did not find causality running in the opposite direction.

Suggested Citation

  • Henryk Gurgul & Roland Mestel & Robert Syrek, 2013. "The testing of causal stock returns-trading volume dependencies with the aid of copulas," Managerial Economics, AGH University of Science and Technology, Faculty of Management, vol. 13, pages 21-44.
    • Handle: RePEc:agh:journl:v:13:y:2013:p:21-44
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    References listed on IDEAS

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