Does trading volume really explain stock returns volatility?

Thierry Ané () and Loredana Ureche-Rangau
Additional contact information
Thierry Ané: University of Reims, IÉSEG School of Management

No 2004-FIN-02, Working Papers from IESEG School of Management

Abstract: Assuming that the variance of daily price changes and trading volume are both driven by the same latent variable measuring the number of price-relevant information arriving on the market, the Mixture of Distribution Hypothesis (MDH) represents an intuitive and appealing explanation for the empirically observed correlation between volume and volatility of speculative assets. This paper investigates to which extent the temporal dependence of volatility and volume is compatible with a MDH model through a systematic analysis of the long memory properties of power transformations of both series. It is found that the fractional differencing parameter of the volatility series reaches its maximum for a power transformation around and then decreases for other order moments while the differencing parameter of the trading volume remains remarkably unchanged. The volatility process thus exhibits a high degree of intermittence whereas the volume dynamic appears much smoother. The results suggest that volatility and volume may share common short-term movements but that their long-run behavior is fundamentally different.

Keywords: Volatility Persistence; Long Memory; Trading Volume (search for similar items in EconPapers)
JEL-codes: C13 C52 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Journal of International Financial Markets Institutions and Money, July 2008, 18, pp. 216-235

Downloads: (external link)
http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=971729515_AneUreche.pdf First version, 2004 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 FORBIDDEN (http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=971729515_AneUreche.pdf [301 Moved Permanently]--> https://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=971729515_AneUreche.pdf [301 Moved Permanently]--> https://iesegnet.sharepoint.com/sites/Intranet-Home/bienvenue/DownloadDoc.asp?Fich=971729515_AneUreche.pdf)

Related works:
Journal Article: Does trading volume really explain stock returns volatility? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:f200402

Access Statistics for this paper

More papers in Working Papers from IESEG School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Lies BOUTEN ().