The Dynamic Relationship between Stock Volatility and Trading Volume

Muhammad Irfan Javaid Attari, Saubana Rafiq and Hayat Muhammad Awan

Asian Economic and Financial Review, 2012, vol. 2, issue 8, 1085-1097

Abstract: The objective of the study is to measure the relationship between trading volume and returns; and change in trading volume and returns of stocks in Pakistan.Various techniques such as Unit root tests and GARCH have been applied on the data to determine the relationship between aforesaid variables. For this purpose, weekly data of Karachi Stock Exchange (KSE-100 index) has been collected and analyzed from January 2000 to March 2012.The GARCH results indicate a significant positive relationship between trading volume and returns; and change in trading volume and returns.This relationship is of great importance to individuals from investment and policy making perspective as trading volume reflects information about market expectations, and its relationship with price can have important implications for trading, speculation, forecasting and hedging activities.

Keywords: Stock returns; Trading volume; Karachi stock exchange; ARCH/GARCH. (search for similar items in EconPapers)
Date: 2012
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