The Equity Volatility-Volume Ratio and Treasury Bond Returns

59 Pages Posted: 18 Oct 2019 Last revised: 24 Oct 2019

See all articles by Stefanie Schraeder

Stefanie Schraeder

University of New South Wales

Elvira Sojli

UNSW Australia Business School, School of Banking and Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Wing Wah Tham

University of New South Wales (UNSW)

Date Written: October 4, 2019

Abstract

We consider stock and bond market prices jointly in a setting where rational investors are unsure if overconfident investors have valid signals. In times of likely shifts in economic states, the probability of receiving informative signals is higher, so trading volume (volatility) is lower (higher). Central banks react only to macroeconomic changes, but their reaction is uncertain. So during periods where macroeconomic state shifts are more likely, long-term bonds command larger risk premia. We confirm these predictions by showing that the equity market volatility-volume ratio significantly predicts monetary policy uncertainty as well as one-year ahead bond returns.

Keywords: Stock market volume-to-volatility ratio, Amihud ratio, Bond risk premia, Overconfident investors, Monetary policy uncertainty

JEL Classification: G10, G14, G12, G20

Suggested Citation

Schraeder, Stefanie and Sojli, Elvira and Subrahmanyam, Avanidhar and Tham, Wing Wah, The Equity Volatility-Volume Ratio and Treasury Bond Returns (October 4, 2019). Available at SSRN: https://ssrn.com/abstract=3464060 or http://dx.doi.org/10.2139/ssrn.3464060

Stefanie Schraeder

University of New South Wales ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Elvira Sojli

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

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

Wing Wah Tham

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
50
Abstract Views
257
PlumX Metrics