Testing the Impact of Trading Volume on Market Return and Volatility

Download or read book Testing the Impact of Trading Volume on Market Return and Volatility written by Cristiana Tudor and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper examines both the return-volume and volatility-volume movements on Bucharest Stock Exchange, in order to evaluate the impact of changes in stock market liquidity on stock returns and on volatility of returns. We employ linear Granger-causality tests to investigate the dynamic relation between trading volume, stock returns and returns volatility on the Romanian stock market, using daily logarithmic returns for the composite index BET-C, as a proxy for the market, and daily logarithmic change in trading volume during the period January 2004-July 2008. As a proxy for return volatility we employ absolute values of daily deviation of return from its mean value during the considered time period. We can report unidirectional linear causality from returns to volume and also from volume to volatility.