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Heteroscedasticity in stock returns data revisited: volume versus GARCH effects

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  • M. F. Omran
  • E. McKenzie

Abstract

The results of Lamoureux and Lastrapes (Journal of Finance, 45, 221-29, 1990) are extended to the UK stock market, and the study examines, in particular, their finding that GARCH modelling captures the serial dependence in volume of trade. Using data on 50 UK companies, we find that although the parameter estimates of the GARCH model become insignificant when volume of trade is used in the conditional variance of returns, the autocorrelations of the squared residuals still exhibit a highly significant GARCH effects. Evidence is found that there is a strong association in the timing of innovational outliers in returns and volume. The results suggest that a threshold model for volume and returns could prove a useful route to pursue in future research.

Suggested Citation

  • M. F. Omran & E. McKenzie, 2000. "Heteroscedasticity in stock returns data revisited: volume versus GARCH effects," Applied Financial Economics, Taylor & Francis Journals, vol. 10(5), pages 553-560.
    • Handle: RePEc:taf:apfiec:v:10:y:2000:i:5:p:553-560
    DOI: 10.1080/096031000416433
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    References listed on IDEAS

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    1. 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(1), pages 109-126, March.
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    5. 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 221-229, March.
    6. Stock, James H, 1987. "Measuring Business Cycle Time," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1240-1261, December.
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