The Dynamic Relation between Stock Returns, Trading Volume, and Volatility

Posted: 31 Oct 2002

See all articles by Gong-meng Chen

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance

Michael Firth

Lingnan University - Department of Finance and Insurance

Oliver M. Rui

China Europe International Business School (CEIBS)

Abstract

We examine the dynamic relation between returns, volume, and volatility of stock indexes. The data come from nine national markets and cover the period from 1973 to 2000. The results show a positive correlation between trading volume and the absolute value of the stock price change. Granger causality tests demonstrate that for some countries, returns cause volume and volume causes returns. Our results indicate that trading volume contributes some information to the returns process. The results also show persistence in volatility even after we incorporate contemporaneous and lagged volume effects. The results are robust across the nine national markets.

Suggested Citation

Chen, Gong-meng and Firth, Michael and Rui, Oliver M., The Dynamic Relation between Stock Returns, Trading Volume, and Volatility. Available at SSRN: https://ssrn.com/abstract=311270

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
+852 2766 7070 (Phone)

Michael Firth (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Oliver M. Rui

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

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