What drives the volume-volatility relationship on Euronext Paris?

Waël Louhichi
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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

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Abstract: The goal of this paper is to shed light on the relationship between volume and volatility. More specifically, it aims to determine which component of trading volume (trade size or number of transactions) drives this relation. Our intraday analysis reveals several results. Firstly, we confirm the strong positive relationship between volume and volatility. Secondly, including volume in the conditional variance of stock returns significantly reduces the persistence of volatility. Thirdly, we show that the well-known positive relationship between volatility and volume is generated by the number of trades. These results are robust, even after controlling for the impact of the intraday patterns. Finally, our findings are available for the CAC40 Index as well as for individual stocks.

Keywords: Volume; Conditional volatility; Number of transactions; Size of trades; Market microstructure; Euronext Paris (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (12)

Published in International Review of Financial Analysis, 2011, 20, pp.200-206

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00601370

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