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Asymmetric information, volatility components and the volume–volatility relationship for the CAC40 stocks

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  • Slim, Skander
  • Dahmene, Meriam

Abstract

This paper investigates the relationship between trading volume components and various realized volatility measures for the CAC40 index constituents. A mixture-of-distribution model is used to decompose trading volume into informed and liquidity components. Realized volatility is broken down into continuous volatility and jumps. Our findings confirm the strong positive contemporaneous relationship between total trading volume and volatility when realized volatility and its continuous component are considered. A limited evidence of the effect of total trading volume on discontinuous volatility is found. The positive volume–volatility relationship is mainly driven by the informed component of trading volume. Conversely, liquidity volume is negatively related to realized volatility lending some support to the view that liquidity trading dampens the volatility of stock returns. A stronger negative relationship between liquidity volume and volatility jump is uncovered.

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  • 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.
    • Handle: RePEc:eee:glofin:v:29:y:2016:i:c:p:70-84
    DOI: 10.1016/j.gfj.2015.04.001
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    More about this item

    Keywords

    Trading volume; Realized volatility; Asymmetric information; Jumps;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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