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How does trading volume affect financial return distributions?

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  • Do, Hung Xuan
  • Brooks, Robert
  • Treepongkaruna, Sirimon
  • Wu, Eliza

Abstract

We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.

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  • Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon & Wu, Eliza, 2014. "How does trading volume affect financial return distributions?," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 190-206.
    • Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:190-206
    DOI: 10.1016/j.irfa.2014.09.003
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    Cited by:

    1. Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2020. "Electricity market integration, decarbonisation and security of supply: Dynamic volatility connectedness in the Irish and Great Britain markets," Energy Economics, Elsevier, vol. 92(C).
    2. Yip, Pick Schen & Brooks, Robert & Do, Hung Xuan & Nguyen, Duc Khuong, 2020. "Dynamic volatility spillover effects between oil and agricultural products," International Review of Financial Analysis, Elsevier, vol. 69(C).
    3. Pham, Son Duy & Nguyen, Thao Thac Thanh & Do, Hung Xuan & Vo, Xuan Vinh, 2023. "Portfolio diversification during the COVID-19 pandemic: Do vaccinations matter?," Journal of Financial Stability, Elsevier, vol. 65(C).
    4. Tanin, Tauhidul Islam & Sarker, Ashutosh & Brooks, Robert & Do, Hung Xuan, 2022. "Does oil impact gold during COVID-19 and three other recent crises?," Energy Economics, Elsevier, vol. 108(C).
    5. Chaiyuth Padungsaksawasdi & Sirimon Treepongkaruna & Robert Brooks, 2019. "Investor Attention and Stock Market Activities: New Evidence from Panel Data," IJFS, MDPI, vol. 7(2), pages 1-19, June.
    6. Yip, Pick Schen & Brooks, Robert & Do, Hung Xuan, 2017. "Dynamic spillover between commodities and commodity currencies during United States Q.E," Energy Economics, Elsevier, vol. 66(C), pages 399-410.
    7. Wang, Zijun & Qian, Yan & Wang, Shiwen, 2018. "Dynamic trading volume and stock return relation: Does it hold out of sample?," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 195-210.
    8. Bissoondoyal-Bheenick, Emawtee & Do, Hung & Hu, Xiaolu & Zhong, Angel, 2022. "Sentiment and stock market connectedness: Evidence from the U.S. – China trade war," International Review of Financial Analysis, Elsevier, vol. 80(C).
    9. Hung Do & Rabindra Nepal & Russell Smyth, 2020. "Interconnectedness in the Australian National Electricity Market: A Higher‐Moment Analysis," The Economic Record, The Economic Society of Australia, vol. 96(315), pages 450-469, December.
    10. Naeem, Muhammad & Bouri, Elie & Boako, Gideon & Roubaud, David, 2020. "Tail dependence in the return-volume of leading cryptocurrencies," Finance Research Letters, Elsevier, vol. 36(C).
    11. You-How Go & Wee-Yeap Lau, 2020. "Does Trading Volume explain the Information Flow of Crude Palm Oil Futures Returns?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 12(2), pages 115-136, December.
    12. Ahadzie, Richard Mawulawoe & Jeyasreedharan, Nagaratnam, 2020. "Trading volume and realized higher-order moments in the Australian stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    13. Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon & Wu, Eliza, 2016. "Stock and currency market linkages: New evidence from realized spillovers in higher moments," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 167-185.
    14. Do, Hung Xuan & Brooks, Robert & Treepongkaruna, Sirimon, 2015. "Realized spill-over effects between stock and foreign exchange market: Evidence from regional analysis," Global Finance Journal, Elsevier, vol. 28(C), pages 24-37.
    15. Emawtee Bissoondoyal-Bheenick & Robert Brooks & Wei Chi & Hung Xuan Do, 2018. "Volatility spillover between the US, Chinese and Australian stock markets," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 263-285, May.
    16. Bissoondoyal-Bheenick, Emawtee & Do, Hung & Hu, Xiaolu & Zhong, Angel, 2021. "Learning from SARS: Return and volatility connectedness in COVID-19," Finance Research Letters, Elsevier, vol. 41(C).

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    More about this item

    Keywords

    Intraday data; Higher moments; Information theory; Fractional integrated VAR;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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