How does trading volume affect financial return distributions?

Hung Do, Robert Brooks, Sirimon Treepongkaruna and Eliza Wu

International Review of Financial Analysis, 2014, vol. 35, issue C, 190-206

Abstract: We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.

Keywords: Intraday data; Higher moments; Information theory; Fractional integrated VAR (search for similar items in EconPapers)
JEL-codes: C5 F3 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:35:y:2014:i:c:p:190-206

DOI: 10.1016/j.irfa.2014.09.003

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