The bivariate GARCH approach to investigating the relation between stock returns, trading volume, and return volatility

Wen-I Chuang, Hsiang-Hsi Liu and Rauli Susmel

Global Finance Journal, 2012, vol. 23, issue 1, 1-15

Abstract: We use a bivariate GJR-GARCH model to investigate simultaneously the contemporaneous and causal relations between trading volume and stock returns and the causal relation between trading volume and return volatility in a one-step estimation procedure, which leads to the more efficient estimates and is more consistent with finance theory. We apply our approach to ten Asian stock markets: Hong Kong, Japan, Korea, Singapore, Taiwan, China, Indonesia, Malaysia, the Philippines, and Thailand. Our major findings are as follows. First, the contemporaneous relation between stock returns and trading volume and the causal relation from stock returns and trading volume are significant and robust across all sample stock markets. Second, there is a positive bi-directional causality between stock returns and trading volume in Taiwan and China and that between trading volume and return volatility in Japan, Korea, Singapore, and Taiwan. Third, there exists a positive contemporaneous relation between trading volume and return volatility in Hong Kong, Korea, Singapore, China, Indonesia, and Thailand, but a negative one in Japan and Taiwan. Fourth, we find a significant asymmetric effect on return and volume volatilities in all sample countries and in Korea and Thailand, respectively.

Keywords: Stock returns; Trading volume; Return volatility; Contemporaneous and causal relations; GJR-GARCH (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:23:y:2012:i:1:p:1-15

DOI: 10.1016/j.gfj.2012.01.001

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