Trade size, trade frequency, and the volatility‐volume relation

Abstract

Purpose -The Chinese stock market is a typical emerging market with special features that are very different from those of mature markets. The objective of this study is to investigate whether and how these features affect the volatility-volume relation for Chinese stocks. Design/methodology/approach -This paper examines the roles of the number of trades, size of trades, and share volume in explaining the volatility-volume relation in the Shanghai Stock Exchange with high frequency trade data used. Findings -The results confirm that the volatility-volume relation is driven mainly by the number of trades on the Chinese stock market. The number of trades explains the volatility-volume relation better than the size of trades. Furthermore, some results are obtained that differ from those of mature markets, such as the US market. The results show that the second largest sized trades affect the volatility more than other trades on the Chinese market. Originality/value -The results show that, in the Shanghai Stock Exchange, informed traders camouflage their private information or manipulation behavior through the second largest sized trades. The results may have important implications for work explaining the volatility-volume relation on the Chinese stock market, further providing a reference by which to regulate emerging markets.

The impact of trading volume on stock price volatility in the Arab economy

“…This conclusion was found in Latin America stock markets as reported by Saatccioglu and Starks 8 and Christofi and Pericli, 41 in the Swedish stock market as reported by Säfvenblad,10 in the New York stock exchange as reported by Gallant et al, 13 in the Taiwan stock market as reported by Hsin et al, 15 in selected developed stock markets as reported by Sabri,18 in selected emerging stock markets as reported by Sabri 17 and De Santis and Imrohorglu, 42 in the Shanghai stock exchange as reported by Song et al 16 and Mei et al, 12 and in the Turkish stock market as reported by Basci et al 43 The question arises here as to the major factors that may drive the Arab stock market to volume volatility. In general, the trading volatility may be associated to the transmission impact from other major markets and to the volatility spillovers concept from leading stock markets.…”

Neoclassical finance, behavioral finance and noise traders: A review and assessment of the literature

“…Odean (1998b) provides evidence suggesting that overconfidence boosts trading volume and volatility, leading to underreaction. Song, Tan and Wu (2005) find that the relationship between volatility and volume on the Chinese stock market is driven mainly by the number of trades.…”

The Impact of Trade Characteristics on Stock Return Volatility: Evidence from the Australian Stock Exchange*

“…In contrast, Chan and Fong (2000) confirm the significance of trade size, beyond that of trading frequency in the volatility-volume relation for a sample of 295 New York Stock Exchange (NYSE) stocks and 231 NASDAQ stocks. 2) Recently, this line of research has been extended to the Chinese stock market by Song et al (2005), who describe their market as a typical emerging one that has very different institutional features compared to U.S. exchanges. 3) Song et al (2005) use a sample of 566 stocks from the Shanghai Stock Exchange (SSE) and found that the volatility-volume relation is mainly driven by trading frequency, where the second largest sized trades are found to affect the volatility more than other trades on the SSE.…”

“…2) Recently, this line of research has been extended to the Chinese stock market by Song et al (2005), who describe their market as a typical emerging one that has very different institutional features compared to U.S. exchanges. 3) Song et al (2005) use a sample of 566 stocks from the Shanghai Stock Exchange (SSE) and found that the volatility-volume relation is mainly driven by trading frequency, where the second largest sized trades are found to affect the volatility more than other trades on the SSE. The results from the above studies cannot be universally applied to those stock exchanges with distinct market structures.…”

“…This highlights that market structure differences can lead to differing volatility-volume relations. 3) Song et al (2005) outline some of the unique characteristics of the Chinese Stock markets that differentiate it from mature markets are that: (i) there are a lot of hidden inside trades with information asymmetry; (ii) price manipulation seems serious; and (iii) the composition of investors and their investing behaviour are more speculative.…”