New Insights on the Trading Volume–Return Relationship: Evidence from the Three Largest Stock Exchanges

Victor Troster, André M. Marques () and Muhammad Shahbaz
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André M. Marques: Federal University of Paraíba

A chapter in Economic Growth and Financial Development, 2021, pp 179-204 from Springer

Abstract: Abstract This chapter uncovers new insights on the dynamic volume–return relationship. We verify whether non-informational or informational trading can explain the volume–return relation in the three largest stock exchanges. We apply the cross-quantilogram approach to investigate the directional predictability from volume to returns across different market states. Besides, we consider nonlinearities and asymmetries in the volume–return relationship. We report evidence that the volume–return relationship is asymmetric and nonlinear across different market phases. Our results are consistent with models based on asymmetric information and overreaction to news among investors, where prevalent informational (non-informational) trading leads to negative (positive) volume–return causality. Our findings have important policy implications for risk managers, who may use the predictability from past volume to future returns for developing optimal hedging strategies.

Keywords: Volume–return dependence; Informational trades; Directional predictability; Trading volume; Granger-causality; Quantile regression (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-79003-5_10

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DOI: 10.1007/978-3-030-79003-5_10

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