Long memory in volatility and trading volume

Jeff Fleming and Chris Kirby

Journal of Banking & Finance, 2011, vol. 35, issue 7, 1714-1726

Abstract: We use fractionally-integrated time-series models to investigate the joint dynamics of equity trading volume and volatility. Bollerslev and Jubinski (1999) show that volume and volatility have a similar degree of fractional integration, and they argue that this evidence supports a long-run view of the mixture-of-distributions hypothesis. We examine this issue using more precise volatility estimates obtained using high-frequency returns (i.e., realized volatilities). Our results indicate that volume and volatility both display long memory, but we can reject the hypothesis that the two series share a common order of fractional integration for a fifth of the firms in our sample. Moreover, we find a strong correlation between the innovations to volume and volatility, which suggests that trading volume can be used to obtain more precise estimates of daily volatility for cases in which high-frequency returns are unavailable.

Keywords: Realized; volatility; Fractional; integration; Strongly; autocorrelated; Bivariate; mixture; model; Long-range; dependence (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (65)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:7:p:1714-1726

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