Asymmetric responses of international stock markets to trading volume

Richard Gerlach, Cathy W. S. Chen (), Doris S.Y. Lin and Ming-Hsiang Huang

Physica A: Statistical Mechanics and its Applications, 2006, vol. 360, issue 2, 422-444

Abstract: The major goal of this paper is to examine the hypothesis that stock returns and return volatility are asymmetric, threshold nonlinear, functions of change in trading volume. A minor goal is to examine whether return spillover effects also display such asymmetry. Employing a double-threshold GARCH model with trading volume as a threshold variable, we find strong evidence supporting this hypothesis in five international market return series. Asymmetric causality tests lend further support to our trading volume threshold model and conclusions. Specifically, an increase in volume is positively associated, while decreasing volume is negatively associated, with the major price index in four of the five markets. The volatility of each series also displays an asymmetric reaction, four of the markets display higher volatility following increases in trading volume. Using posterior odds ratio, the proposed threshold model is strongly favored in three of the five markets, compared to a US news double threshold GARCH model and a symmetric GARCH model. We also find significant nonlinear asymmetric return spillover effects from the US market.

Keywords: Asymmetry; Double threshold GARCH; MCMC methods; Model selection; Trading volume change (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:360:y:2006:i:2:p:422-444

DOI: 10.1016/j.physa.2005.06.045

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