Bid-Ask Spreads, Trading Volume and Return Volatility: Intraday Evidence from Indian Stock Market

Rashmi Ranjan Paital () and Naresh Kumar Sharma ()
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Rashmi Ranjan Paital: University of Hyderabad, India
Naresh Kumar Sharma: University of Hyderabad, India

Eurasian Journal of Economics and Finance, 2016, vol. 4, issue 1, 24-40

Abstract: This paper empirically examines the relationship between stock return volatility, trading volume and bid-ask spread within the scope of mixture of distribution hypothesis (MDH) and sequential information arrival hypothesis (SIAH) in the Indian stock market using high frequency 5-minute data set over the period of 2 July 2012 to 31 December 2012. This is the first kind of study in India using bid-ask spread as an additional information variable along with trading volume to investigate the relationship with stock return volatility. Our empirical findings provide evidence of a positive contemporaneous relationship between return volatility and trading volume, and also between return volatility and bid-ask spread. Moreover, the results of Granger causality test show that the information content of trading volume and bid-ask spread are useful for predicting stock return volatility. Our results indicate that information arrival to investors tends to follow a sequential rather than a simultaneous process. This finding is consistent with the sequential information arrival hypothesis and contradicts the mixture of distribution hypothesis.

Keywords: Intraday; Volatility; Trading Volume; Bid-Ask Spread; Granger Causality; MDH; SIAH (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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