Does Trading Volume Contain Information to Predict Stock Returns? Evidence from China’s Stock Markets

Cheng Few Lee and Oliver M. Rui

Chapter 42 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 1403-1429 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper examines empirical contemporaneous and causal relationships between trading volume, stock returns and return volatility in China’s four stock exchanges and across these markets. We find that trading volume does not Granger-cause stock market returns on each of the markets. As for the cross-market causal relationship in China’s stock markets, there is evidence of a feedback relationship in returns between Shanghai A and Shenzhen B stocks, and between Shanghai B and Shenzhen B stocks. Shanghai B return helps predict the return of Shenzhen A stocks. Shanghai A volume Granger-causes return of Shenzhen B. Shenzhen B volume helps predict the return of Shanghai B stocks. This paper also investigates the causal relationship among these three variables between China’s stock markets and the U.S. stock market and between China and Hong Kong. We find that U.S. return helps predict returns of Shanghai A and Shanghai B stocks. U.S. and Hong Kong volumes do not Granger-cause either return or volatility in China’s stock markets. In short, information contained in returns, volatility, and volume from financial markets in the U.S. and Hong Kong has very weak predictive power for Chinese financial market variables.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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