Threshold linkages between volatility and trading volume: evidence from developed and emerging markets

Fredj Jawadi and Ureche-Rangau Loredana
Additional contact information
Ureche-Rangau Loredana: Université de Picardie Jules Verne, CRIISEA, Pôle Universitaire Cathédrale, 10 placette Lafleur, BP 2716, 80027 Amiens Cedex 1, France

Studies in Nonlinear Dynamics & Econometrics, 2013, vol. 17, issue 3, 313-333

Abstract: This paper studies volatility dynamics and provides further insights into its relationship with trading volume. In particular, we examine whether trading volume is significantly informative for investors when attempting to apprehend potential changes in volatility dynamics, and hence, in the evolution of market risk. To this end, we apply recent nonlinear modeling tools, namely Switching Transition Regression (STR) models that are robust to asymmetry and nonlinearity as well as TARCH models to check for the nature of transition between volatility regimes. Our findings show that volatility dynamics exhibit nonlinearity and switching regimes for which the transition is smooth rather than abrupt. Furthermore, one regime is associated with low volatility and a weak relationship with trading volume while in the second regime, the causality relationship is stronger and volatility is high. The paper’s novelty is to show that not only does trading volume contribute to explaining market volatility, but also that the change in volatility dynamics is performed through the change in its relationship with trading volume.

Keywords: volatility; trading volume; structural breaks; nonlinearity (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1515/snde-2012-0040 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:sndecm:v:17:y:2013:i:3:p:313-333:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/snde/html

DOI: 10.1515/snde-2012-0040

Access Statistics for this article

Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach

More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().