The Dynamic Relationship between Price and Trading Volume: Evidence from Indian Stock Market

51 Pages Posted: 25 Dec 2009

See all articles by Brajesh Kumar

Brajesh Kumar

Jindal Global Business School; IIM Ahmedabad

Priyanka Singh

Indian Institute of Management (IIM), Ahmedabad

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS)

Date Written: December 23, 2009

Abstract

This study investigates the nature of relationship between price and trading volume for 50 Indian stocks. Firstly the contemporaneous and asymmetric relation between price and volume are examined. Then we examine the dynamic relation between returns and volume using VAR, Granger causality, variance decomposition (VD) and impulse response function (IRF). Mixture of Distributions Hypothesis (MDH), which tests the GARCH vs. Volume effect, is also studied between the conditional volatility and volume. The results show that there is positive and asymmetric relation between volume and price changes. Further the results of VAR and Granger causality show that there is a bi-directional relation between volume and returns. However, the results of VD imply weak dynamic relation between returns and volume which becomes more evident from the plots of IRF. On MDH, our results are mixed, neither entirely rejecting the MDH nor giving it an unconditional support.

Keywords: Trading volume, Volatility, Mixture of distributions hypothesis, GARCH, Granger Causality, VAR, Impulse response function, Variance decomposition

JEL Classification: C22, C32, G12

Suggested Citation

Kumar, Brajesh and Singh, Priyanka and Pandey, Ajay, The Dynamic Relationship between Price and Trading Volume: Evidence from Indian Stock Market (December 23, 2009). Available at SSRN: https://ssrn.com/abstract=1527562 or http://dx.doi.org/10.2139/ssrn.1527562

Brajesh Kumar (Contact Author)

Jindal Global Business School ( email )

University Sonipat-Narela Road
Near Jagdishpur Vill
Sonipat, Haryana 131001
India
+918930110773 (Phone)

HOME PAGE: http://www.jgbs.edu.in

IIM Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Priyanka Singh

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS) ( email )

Jindal Centre 12 Bhi12 Bhikaiji Cama Place
Near Jagdishpur Village
New Delhi, Uttar Pradesh/Haryana 110 066
India

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