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The relationship between stock return volatility and trading volume: the case of the Philippines

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  • Manabu Asai
  • Angelo Unite

Abstract

This article reconsiders the relationship between stock return volatility and trading volume. Based on the multi-factor stochastic volatility model for stock return, we suggest several specifications for the trading volume. This approach enables the unobservable information arrival to follow the ARMA process. We apply the model to the data of Philippine Stock Exchange Composite Index and find that two factors are adequate to describe the movements of stock return volatility and variance of trading volume. We also find that the weights for the factors of the return and volume models are different from each other. The empirical results show (i) a negative correlation between stock return volatility and variance of trading volume, and (ii) a lack of effect of information arrivals on the level of trading volume. These findings are contrary to the results for the equity markets of advanced countries.

Suggested Citation

  • Manabu Asai & Angelo Unite, 2008. "The relationship between stock return volatility and trading volume: the case of the Philippines," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1333-1341.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:16:p:1333-1341
    DOI: 10.1080/09603100701604274
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    Cited by:

    1. M. Hakan Eratalay, 2016. "Estimation of Multivariate Stochastic Volatility Models: A Comparative Monte Carlo Study," International Econometric Review (IER), Econometric Research Association, vol. 8(2), pages 19-52, September.
    2. Loredana Ureche-Rangau & Quiterie de Rorthays, 2009. "More on the volatility-trading volume relationship in emerging markets: The Chinese stock market," Journal of Applied Statistics, Taylor & Francis Journals, vol. 36(7), pages 779-799.
    3. Tosin B. Fateye & Oluwaseun D. Ajay & Cyril A. Ajay, 2021. "Modelling of Daily Price Volatility of South Africa Property Stock Market Using GARCH Analysis," AfRES 2021-013, African Real Estate Society (AfRES).
    4. Loredana Ureche-Rangau & Fabien Collado & Ulysse Galiay, 2011. "The dynamics of the volatility – trading volume relationship: New evidence from developed and emerging markets," Economics Bulletin, AccessEcon, vol. 31(3), pages 2569-2583.
    5. Jawadi Fredj & Ureche-Rangau Loredana, 2013. "Threshold linkages between volatility and trading volume: evidence from developed and emerging markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 313-333, May.

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