Intraday jumps and trading volume: a nonlinear Tobit specification

Fredj Jawadi, Waël Louhichi (), Abdoulkarim Idi Cheffou () and Rivo Randrianarivony ()
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Waël Louhichi: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Abdoulkarim Idi Cheffou: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Rivo Randrianarivony: NIMEC - Normandie Innovation Marché Entreprise Consommation - UNICAEN - Université de Caen Normandie - NU - Normandie Université - ULH - Université Le Havre Normandie - NU - Normandie Université - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université

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Abstract: This paper investigates the relationship between trading volume and volatility for four international stock markets (US: S&P500, UK: FTSE100, France: CAC40 and Germany: DAX30) in a context of global financial crisis. Unlike previous related studies, we use intraday data and apply a nonlinear econometric model to assess this relationship. In particular, we first break down intraday realized volatility into its continuous and jump components using the non-parametric approach developed by Barndorff-Nielsen and Shephard (J Financ Econom 4:1–30, 2006). Second, we investigate the volume–volatility relationship and test whether it varies according to volatility components (jumps and continuous component). While Giot et al. (J Empir Finance 17:168–175, 2010), among others, investigated the volume–volatility relationship in a linear context, our study contributes by estimating different nonlinear specifications (threshold model, nonlinear Tobit model) that enable us to capture further asymmetry and time-variation to better apprehend the effect of trading volume on realized volatility. Accordingly, our study yields two interesting findings. On the one hand, as expected there is a significant and positive relationship between trading volume and realized volatility, as well as with its components, confirming the importance of trading volume as a key to characterizing volatility. On the other hand, we show that this relationship exhibits asymmetry and nonlinearity, and that threshold models are more appropriate than linear model to characterize the volume volatility relationship.

Keywords: Realized volatility; Jumps; Trading volume; Nonlinearity; Intraday data (search for similar items in EconPapers)
Date: 2016-11
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Citations: View citations in EconPapers (5)

Published in Review of Quantitative Finance and Accounting, 2016, 47 (4), pp.1167-1186. ⟨10.1007/s11156-015-0534-0⟩

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Journal Article: Intraday jumps and trading volume: a nonlinear Tobit specification (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02358454

DOI: 10.1007/s11156-015-0534-0

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