Research ArticleOpen AccessGoogle Scholar indexed
Relationship between Trading Volume and Asymmetric Volatility in the Korean Stock Market
Department of Economics, Pusan National University, Busan, Korea
Research Institute of Social Criticality, Pusan National University, Busan, Korea
Department of Business Administration, Pusan National University, Busan, Korea
Department of Economics, Pusan National University, Busan, Korea
- 1 Department of Economics, Pusan National University, Busan, Korea
- 2 Research Institute of Social Criticality, Pusan National University, Busan, Korea
- 3 Department of Business Administration, Pusan National University, Busan, Korea
- 4 Department of Economics, Pusan National University, Busan, Korea
Copy link · social · email
Abstract
We investigated the relationship between return volatility and trading volume as a proxy for the arrival of information to the market, based on Korean stock market (KSM) data from January 2000 to December 2010. We measured the rela- tionship between return volatility and trading volume using the GJR-GARCH and exponential GARCH (EGARCH) models. We found a positive relationship between trading volume and volatility, suggesting that trading volume influ- ences the flow of information to the market. This finding supports the validity of the mixture of distributions hy-pothesis. Considering that trading volume can also explain volatility asymmetry, we conclude that trading volume is a useful tool for predicting the volatility dynamics of the KSM.
KeywordsAsymmetryVolatilityTrading VolumeMixture of Distribution Hypothesis
- D. B. Nelson, “Conditional Heteroskedasticity in Asset Returns: A New Approach,” Econometrica, Vol. 59, No. 2, 1991, pp. 323-370. doi:10.2307/2938260
- R. F. Engle and V. K. Ng, “Measuring and Testing the Impact of News on Volatility,” Journal of Finance, Vol. 48, No.5, 1993, pp. 1749-1778. doi:10.1111/j.1540-6261.1993.tb05127.x
- T. E. Copeland, “A model of Asset Trading under the Assumption of Sequential Information Arrival,” Journal of Finance, Vol. 31, No. 4, 1976, pp. 1149-1168. doi:10.2307/2326280
- P. K. Clark, “A Subordinated Sto-chastic Process Model with Finite Variance for Speculative Prices,” Economet- rica, Vol. 41, No. 1, 1973, pp. 135-155. doi:10.2307/1913889
- T. W. Epps and M. L. Epps, “The stochastic Dependence of Security Price Changes and Transac-tion Volumes: Im- plications for the Mixture-of-Distributions Hypothesis,” Econometrica, Vol. 44, No. 2, 1976, pp. 305-321. doi:10.2307/1912726
- L. Harris, “Cross-Security Tests of the Mixture of Distri- butions Hypothesis,” Journal Financial and Quantitative Analysis, Vol. 21, No. 1, 1986, pp. 39-46. doi:10.2307/2330989
- C. G. Lamoureux and W. D. La-strapes, “Heteroskedastic- ity in Stock Return Data: Volume versus GARCH Ef- fects,” Journal of Finance, Vol. 45, No. 1, 1990, pp. 221- 229. doi:10.1111/j.1540-6261.1990.tb05088.x
- G. M. Gallo and B. Pacini, “The Effects of Trading Ac- tivity on Market Vola-tility,” European Journal of Fi- nance, Vol. 6, No. 2, 2000, pp. 163-175. doi:10.1080/13518470050020824
- A. J. Foster, “Vo-lume-Volatility Relationship for Crude Oil Futures Markets,” Journal of Futures Markets, Vol. 15, No. 8, 1995, pp. 929-951. doi:10.1002/fut.3990150805
- A. Alsubaie and M. Najand, “Trading Volume, Time- Varying Conditional Volatility, and Asymmetric Volatil- ity Spillover in the Saudi Stock Market,” Journal of Mul- tinational Financial Management, Vol. 19, No. 2, 2009, pp. 139-159. doi:10.1016/j.mulfin.2008.09.002
- J. L. Sharma, M. Mbodja and R. Kamath, “Heteroscedas- ticity in Stock Market Indicator Return Data: Volume versus GARCH Effects,” Applied Financial Economics, Vol. 6, No. 4, 1996, pp. 337-342. doi:10.1080/096031096334132
- C. S. Lee, “A Study on the Trading Volume and Market Volatility,” Journal of Industrial Economics and Business, Vol. 22, No. 2, 2009, pp. 495-511.
- S. C. An, S. W. Jang and S. H. Lee, “A Study on the Lead-Lag Relation between the Trading Volume and the Return Volatility in the KSE,” Management & Economy Re-search, Vol. 14, No. 1, 2006, pp. 19-33.