Revisiting the empirical linkages between stock returns and trading volume

Abstract

This paper investigates whether the empirical linkages between stock returns and trading volume differ over the fluctuations of stock markets, i.e., whether the return-volume relation is asymmetric in bull and bear stock markets. Using monthly data for the S&P 500 price index and trading volume from 1973M2 to 2008M10, strong evidence of asymmetry in contemporaneous correlation is found. As for a dynamic (causal) relation, it is found that the stock return is capable of predicting trading volume in both bear and bull markets. However, the evidence for trade volume predicting returns is weaker. JEL classification: G10; C22

Empirical Linkages between Trading Volume and Stock Markets Shocks: When Sentiments Drive Investors’ Behavior

“…The diversity of nexus can be attributed to the fact that these studies have been conducted for different countries, and focused on different periods, and variables as well as they used different econometric methodologies. As discussed in Karpoff (1987), evidence on the return-volume relationship not only enhances the knowledge on the financial market structure, but also provides information to discriminate between competing theoretical models (Chen, 2012). In the same line, Campbell et al (1993) document that the return-volume relation helps solve the identification problem for testing different models.…”

“…Among others, Hou and Li (2014), Dhaoui (2013) Dhaoui and Khraief (2014), Chen (2012), Campbell et al (1993), Chuang et al (2009), Griffin et al (2007), Karpoff (1987), Lee and Rui (2002), McMillan (2007) Al-Jafari and Tliti (2013) have focused on the nature of connections between trading volume and stock returns. However, even the importance of empirical findings, there is no consensus on empirical results of these studies, which show different causality directions.…”

Explore the Impact of the Trading Value, The Oil Price and Quantitative Easing Policy on the Taiwan and Korea Stock Market Return with Quantile Regression

“…The more active stock market trade of a country shows the more prosperous on its economy. Due to this fact, numerous previous studies have explored the factors of affecting stock volatility, including stock trading value (Assogbavi et al, 1995;Saatcioglu and Starks, 1998;Chen et al, 2001;Lee and Rui, 2002;Statman et al, 2006;Xu et al, 2006;Rashid, 2007;Chuang et al, 2009;Chen, 2012) oil price (Jones and Kaul, 1996;Maghyereh and Kandari, 2007;Aloui and Jammazi, 2009;Qinbin et al, 2012;Mollick and Assefa, 2013) manufacturing industry production index (Mohanty et al, 2011) economic prosperity (Fan et al, 2003;Basher and Sadorsky, 2006;Driesprong et al, 2008;Tang et al, 2010) investment inclination (Faff and Brailsford, 1999;Hondroyiannis and Papapetrou, 2001;Henriques and Sadorsky, 2008;Mollick and Assefa, 2013) interest rate (Kagraoka and Moussa, 2013) the total value of import and export prices (Chen et al, 2001) exchange rate (Lyonnet and Werner, 2012) money supply (Eichengreen, 2013;Karras, 2013) price variation (Girardin and Moussa, 2011;Naifar and Dohaiman, 2013) unemployment rate (Nguyen and Bhatti, 2012;Schenkelberg and Watzka, 2013).…”

Volume Shocks around Announcements in the Chinese Stock Market: An Ex-Post Earnings-Information-Based Study of Speculative Behavior

“…One of the most important features of trading volume study is the pattern of the relationship between volume and price changes [5][6][7]. A positive relationship between trading volume and stock price fluctuations is reported by a number of empirical studies using different methods.…”