Heteroskedasticity in the returns of the main world stock exchange indices: volume versus GARCH effects

Aragó, Vicent; Nieto, Luisa

doi:10.1016/j.intfin.2004.06.001

Cited by 26 publications

(30 citation statements)

References 19 publications

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“…GARCH effects may be explained as a manifestation of time dependence in the rate of evolution of intraday price changes driven by new information arrival. Following earlier studies (for instance, Arago and Nieto, 2005), we use daily trading volume as a proxy for the unobservable new information arrival.…”

Section: Methodsmentioning

confidence: 99%

“…Thus, EV t , the EV at time t , is , and UV t , the UV at time t , is the residual of (ɛ t ). As in Arago and Nieto (2005), our first forecast uses data for total daily volume corresponding to the first six months. Following this, the ARMA models are estimated using a moving window, which drops the first day of the series and introduces the following day.…”

Section: Methodsmentioning

confidence: 99%

“…Chen, Firth, and Rui (2001) report that the persistence in volatility is not eliminated when lagged or contemporaneous trading volume level is incorporated into the GARCH model, a result contradicting the findings of Lamoureux and Lastrapes (1990) with respect to the contemporaneous trading volume. Arago and Nieto (2005) reexamine the results of Lamoureux and Lastrapes (1990) and argue that it is more appropriate to split trading volume into two components: one considered “normal” by the market and hence termed expected volume ( EV ) and the other motivated by the unpredictable flow of information to the market, termed unexpected volume ( UV ). Applying this logic, Arago and Nieto (2005) find that although the effects of the UV on volatility are much greater than those of total volume, inclusion of UV in the variance equation does not reduce the persistence of volatility or GARCH effects.…”

Section: Prior Research and Testable Implicationsmentioning

confidence: 99%

“…Arago and Nieto (2005) reexamine the results of Lamoureux and Lastrapes (1990) and argue that it is more appropriate to split trading volume into two components: one considered “normal” by the market and hence termed expected volume ( EV ) and the other motivated by the unpredictable flow of information to the market, termed unexpected volume ( UV ). Applying this logic, Arago and Nieto (2005) find that although the effects of the UV on volatility are much greater than those of total volume, inclusion of UV in the variance equation does not reduce the persistence of volatility or GARCH effects.…”

Section: Prior Research and Testable Implicationsmentioning

confidence: 99%

See 3 more Smart Citations

Trading Volume and Market Volatility: Developed versus Emerging Stock Markets

Girard

Biswas

2007

The Financial Review

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We investigate the relation between volatility and volume in 22 developed markets and 27 emerging markets. Compared to developed markets, emerging markets show a greater response to large information shocks and exhibit greater sensitivity to unexpected volume. We find a negative relation between expected volume and volatility in several emerging markets, which can be attributed to the relative inefficiency in those markets. Previous research reports that the persistence in volatility is not eliminated when lagged or contemporaneous trading volume is considered. Our findings show that, when volume is decomposed into expected and unexpected components, volatility persistence decreases. Copyright 2007, The Eastern Finance Association.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Prior Research and Testable Implicationsmentioning

confidence: 99%

Section: Prior Research and Testable Implicationsmentioning

confidence: 99%

See 2 more Smart Citations

Trading Volume and Market Volatility: Developed versus Emerging Stock Markets

Girard

Biswas

2007

The Financial Review

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“…This finding suggests the use of GARCH modelling (Bollerslev 1986), which allows for conditional variance in returns. Also, the General Error Density (GED) distribution may be appropriate because all the residuals are not normally distributed with high kurtosis and skewness (see Arago and Nieto 2005).…”

Section: Hassanein and I Azzammentioning

confidence: 99%

Ex post and ex ante returns and risks under different maturities of treasury bonds: evidence from developed and emerging markets

Hassanein

Azzam

2010

Macroeconomics and Finance in Emerging Market Economies

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Based on asset pricing theory, reward/risk ratios vary positively with maturity of Treasury securities. We study the effect of increasing Treasury bonds' maturity on ex post and ex ante returns and risks in developed and emerging countries. As maturity increases, we show that ex post and ex ante returns are negative and they decrease while ex post and ex ante risks increase in developed countries, resulting in a sharp increase in the ex post and ex ante coefficient of variation. This indicates that investors are negatively rewarded for the risk they face for investing in Treasury bonds in developed markets. In emerging markets, as maturity increases, ex post and ex ante returns are positive for medium and long maturities and they increase while ex ante risk decreases with maturity. As maturity increases, the coefficient of variation in emerging and developed markets increases, indicating that reward to investors for facing extra risk decreases as maturity increases; however, investors are much better rewarded in emerging than developed markets.Coefficient of variation, GARCH, yield to maturity,

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Does volume really matter? A risk management perspective using cross‐country evidence

Patra¹,

Bhattacharyya

2019

Int. J Fin Econ

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This paper examines the impact of volume on conditional volatility and value at risk (VaR) in the context of mixture of distribution hypothesis (MDH). We test whether the support for or against the hypothesis is unconditional and holds true universally irrespective of the time period under study, the stock market under study, and the distributional assumptions so made on the residuals of the returns. We find that the persistence in volatility shows negligible reduction in all the indices across subperiods, thus refuting the claims of the MDH: that volume can explain the heteroscedasticity of returns. However, we do find that volume can act as a proxy for information post the sub‐prime financial crisis, and it does impact VaR as the estimates improve significantly for some of these indices, which exhibit a strong correlation between volume and volatility.

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Heteroskedasticity in the returns of the main world stock exchange indices: volume versus GARCH effects

Cited by 26 publications

References 19 publications

Trading Volume and Market Volatility: Developed versus Emerging Stock Markets

Trading Volume and Market Volatility: Developed versus Emerging Stock Markets

Ex post and ex ante returns and risks under different maturities of treasury bonds: evidence from developed and emerging markets

Does volume really matter? A risk management perspective using cross‐country evidence

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