The Empirical Relationship Between Stock Returns, Return Volatility and Trading Volume in the Brazilian Stock Market

Otavio Ribeiro de Medeiros and Bernardus Van Doornik
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Otavio Ribeiro de Medeiros: University of Brasilia

Brazilian Business Review, 2008, vol. 5, issue 1, 01-17

Abstract: We investigate the empirical relationship between stock returns, return volatility and trading volume in the Brazilian stock market (Bovespa). Our sample contains stock return and trading volume data from a theoretical portfolio including stocks participating in the Bovespa Index (Ibovespa) extending from 01/03/2000 through 12/29/2005. The empirical methods used include cross-correlation analysis, unit-root tests, bivariate simultaneous equations regression analysis, GARCH and VAR models, and Granger causality tests. We find support for a contemporaneous as well as a dynamic relationship between stock returns and trading volume, implying that forecasts of one of these variables can be only slightly improved by knowledge of the other. Besides, our results indicate that contemporaneous and dynamic relationships between return volatility and trading volume also exist. Additionally, by applying Granger’s causality test, we find that return volatility contains information about upcoming trading volume and vice versa.

Keywords: Return Volatility; Trading Volume; GARCH; VAR; Granger Causality (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (6)

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