Asymmetric information, volatility components and the volume–volatility relationship for the CAC40 stocks

Skander Slim and Meriam Dahmene

Global Finance Journal, 2016, vol. 29, issue C, 70-84

Abstract: This paper investigates the relationship between trading volume components and various realized volatility measures for the CAC40 index constituents. A mixture-of-distribution model is used to decompose trading volume into informed and liquidity components. Realized volatility is broken down into continuous volatility and jumps. Our findings confirm the strong positive contemporaneous relationship between total trading volume and volatility when realized volatility and its continuous component are considered. A limited evidence of the effect of total trading volume on discontinuous volatility is found. The positive volume–volatility relationship is mainly driven by the informed component of trading volume. Conversely, liquidity volume is negatively related to realized volatility lending some support to the view that liquidity trading dampens the volatility of stock returns. A stronger negative relationship between liquidity volume and volatility jump is uncovered.

Keywords: Trading volume; Realized volatility; Asymmetric information; Jumps (search for similar items in EconPapers)
JEL-codes: C12 C34 G10 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:29:y:2016:i:c:p:70-84

DOI: 10.1016/j.gfj.2015.04.001

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