On the relationship between trading volume and stock price volatility in CASE

Eric Girard and Mohammed Omran

International Journal of Managerial Finance, 2009, vol. 5, issue 1, 110-134

Abstract: Purpose - The purpose of this paper is to examine the change in speed of dissemination of order flow information on stock volatility of return in 79 traded companies at the Cairo and Alexandria Stock Exchange (CASE). Design/methodology/approach - The paper examines the interaction of volatility and volume in 79 traded companies in CASE over a period from January 1998 to May 2005 and provides support for the TGARCH specification for explaining the daily time dependence on the rate of information arrival to the market for stocks traded on CASE. Findings - The paper finds that information size and direction have a negligible effect on conditional volatility and, as a result, the presence of noise trading and speculative bubbles is suspected. It was found that the persistence in volatility is not eliminated when lagged or contemporaneous trading volume is incorporated into a GARCH model. It is shown that, when volume is further broken down into its expected and unexpected components, volatility persistence decreases. This is especially true after May 2001, which marks the beginning of a succession of major stock market reforms. It was also found that anticipated information shocks can have a negative impact on the volatility of return, particularly prior to May 2001. Originality/value - The decrease in the negative relationship between expected volume and volatility after May 2001 suggests that trading efficiency and information dissemination have improved. This is an important finding for CASE as it encourages the reform momentum and reinsures foreign investors.

Keywords: Volume measurement; Volatility; Trade; Market system; Capital markets (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:v:5:y:2009:i:1:p:110-134

DOI: 10.1108/17439130910932369

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