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Examining the relationship between stock return volatility and trading volume: new evidence from an emerging economy

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  • Shekar Bose
  • Hafizur Rahman

Abstract

Using daily stock return data for individual stocks from an emerging economy, this article examines the relationship between return volatility and trading volume under the theoretical postulate of the mixture of distributions hypothesis. The results suggest that the contemporaneous trading volume as a proxy for latent information arrival to the market did not contribute to the removal of significant ARCH or Generalized Autoregressive Conditional Heteroscedasticity effects that are found in stocks at the first stage of the investigation. The same holds for the lagged volume except for one case. This, perhaps, suggests that the trading volume (contemporaneous or lagged) is not adequately conveying information to induce traders' views of the desirability of trade and, therefore, points to the need for searching for other micro and macro variables to be used as potential proxy for information arrival to the stock market of the emerging economy.

Suggested Citation

  • Shekar Bose & Hafizur Rahman, 2015. "Examining the relationship between stock return volatility and trading volume: new evidence from an emerging economy," Applied Economics, Taylor & Francis Journals, vol. 47(18), pages 1899-1908, April.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:18:p:1899-1908
    DOI: 10.1080/00036846.2014.1002885
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    References listed on IDEAS

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    2. Karaa, Rabaa & Slim, Skander & Hmaied, Dorra Mezzez, 2018. "Trading intensity and the volume-volatility relationship on the Tunis Stock Exchange," Research in International Business and Finance, Elsevier, vol. 44(C), pages 88-99.
    3. Jiranyakul, Komain, 2016. "Dynamic relationship between stock return, trading volume, and volatility in the Stock Exchange of Thailand: does the US subprime crisis matter?," MPRA Paper 73791, University Library of Munich, Germany.
    4. Batten, Jonathan A. & Kinateder, Harald & Szilagyi, Peter G. & Wagner, Niklas F., 2019. "Liquidity, surprise volume and return premia in the oil market," Energy Economics, Elsevier, vol. 77(C), pages 93-104.
    5. Shekar Bose & Hafizur Rahman, 2022. "Are News Effects Necessarily Asymmetric? Evidence from Bangladesh Stock Market," SAGE Open, , vol. 12(4), pages 21582440221, October.
    6. Malay K. Dey & Chaoyan Wang, 2022. "Asymmetric volume volatility causality in dual listing H-shares," Journal of Asset Management, Palgrave Macmillan, vol. 23(5), pages 419-428, September.
    7. Malay K. Dey & Chaoyan Wang, 2021. "Volume decomposition and volatility in dual-listing H-shares," Journal of Asset Management, Palgrave Macmillan, vol. 22(4), pages 301-310, July.

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