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New evidence on asymmetric return–volume dependence and extreme movements

Yi-Chiuan Wang, Jyh-Lin Wu and Yi-Hao Lai

Journal of Empirical Finance, 2018, vol. 45, issue C, 212-227

Abstract: This paper examines the return–volume dependence structure across six major international stock markets using a dependence-switching copula model. The model allows the return–volume dependence to switch between positive and negative dependence regimes. The empirical results indicate that the return–volume (tail) dependence is asymmetric under the negative and positive dependence regimes, respectively. Next, there is a larger return–volume (tail) dependence for downward price ticks than for upward price ticks when trading volumes are large for most countries, supporting the view of heterogeneous investors with short-sale constraints and negative skewness in returns. Finally, both the intensity of information flow and liquidity trading are important driving forces of the time-varying, return–volume dependence.

Keywords: Dependence-switching copula; Tail dependence; return–volume dependence; Liquidity; Information flow (search for similar items in EconPapers)
JEL-codes: C32 C51 G12 G15 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jempfin.2017.11.012

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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