How does Trading Volume Affect Financial Return Distributions?

41 Pages Posted: 12 Jun 2012 Last revised: 21 May 2015

See all articles by Hung Xuan Do

Hung Xuan Do

Massey University, Albany campus; University of Technology, Sydney

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: June 10, 2012

Abstract

We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.

Keywords: intraday data, higher moments, information theory, long memory, fractional integrated VAR, generalized impulse response

JEL Classification: C32, F31, G15

Suggested Citation

Do, Hung Xuan and Brooks, Robert Darren and Treepongkaruna, Sirimon and Wu, Eliza, How does Trading Volume Affect Financial Return Distributions? (June 10, 2012). International Review of Financial Analysis, Vol. 35, 2014. Available at SSRN: https://ssrn.com/abstract=2082722 or http://dx.doi.org/10.2139/ssrn.2082722

Hung Xuan Do (Contact Author)

Massey University, Albany campus ( email )

Auckland
New Zealand
+64 92136160 (Phone)
+64 92136160 (Fax)

HOME PAGE: http://www.massey.ac.nz/massey/expertise/profile.cfm?stref=972450

University of Technology, Sydney ( email )

PO Box 123
Broadway, 2007
Australia

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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