Trading Volume and Cross-Autocorrelations of Stock Returns in Emerging Markets: Evidence from the Taiwan Stock Market

Wen-Hsiu Kuo (), Hsinan Hsu () and Chwan-Yi Chiang ()
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Wen-Hsiu Kuo: Department of Business Administration, National Cheng Kung University and Department of Finance, Ling Tung College, 1 Lingtung Road, Nantun 408, Taichung City, Taiwan, ROC
Hsinan Hsu: Department of Finance, Southern Taiwan University of Technology, 1 Nan-Tai Street, YungKang City, Tainan County, Taiwan, ROC
Chwan-Yi Chiang: Department of Business Administration, National Cheng Kung University, 1 University Road, Tainan, Taiwan, ROC

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 04, 509-524

Abstract: This study empirically investigates the interaction between trading volume and cross-autocorrelations of stock returns in the Taiwan stock market. The result shows that returns on high trading volume portfolios lead returns on low trading volume portfolios when controlled for firm size, indicating that trading volume determines lead-lag cross-autocorrelations of stock returns. Overall, the empirical findings of this study demonstrate similar results for both monthly and daily returns, suggesting that nonsynchronrous trading is not the main reason for the lead-lag cross-autocorrelations presented in this study. Consequently, the empirical results presented here support the speed of adjustment hypothesis, and suggest that some market inefficiency exists in the Taiwan stock market. Additionally, compared with evidence of lead-lag cross-autocorrelations in the larger, less regulated US stock market, as examined by Chordia and Swaminathan (2000), Taiwan stock market displays less evidence of VARs and Dimson beta regressions. We conjecture that this weak evidence may result from the regulations limiting daily price movements in the Taiwan stock market. Although the price limits policy lowers risk and stabilizes stock prices, it also prevents stock prices and trading volume from instantaneously and fully reflecting new information.

Keywords: Trading volume; cross-autocorrelation; stock returns; Taiwan stock market; VAR (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219091504000263

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