Trading volume and stock returns: A meta-analysis

This study investigates the relationship between return, volume and volatility by using data from the Ghana stock exchange (GSE). The data set comprise of daily closing prices and trading volume collated from 1st August 2005 to 31st December 2010. The empirical examination is conducted by fitting the simple GARCH, GJR and EGARCH models to the trading volume and thinly corrected return series over the sample period. The results of the study show that contemporaneous or lag trading volume do not significantly impact on the raw return, as well as the thinly corrected returns series. This implies that knowledge of any of the variables cannot be utilized to improve the forecast of the other. On the other hand, the study found significant impact of volume on the volatility of both the raw return and the adjusted return, using the GARCH (2,1) model. Moreover, the EGARCH model shows that trading volume has asymmetric impact on the volatility of both the raw and adjusted return; even though, this was rejected in the GJR model. However, both the GJR and the EGARCH conclusively accept the presence of asymmetry in the response to volatility of both the raw and adjusted return series. The results of the study also reject the presence of the mixture of distribution hypothesis (MDH) in the Ghana stock market, when trading volume is used as a proxy for the rate of informational arrival to the market. The study finally reveals that the devaluation of the Ghanaian currency on July 3 2007 possibly has increasing impact on the volatility of stock returns on the GSE. These empirical findings provide useful information to investors, with regards to the microstructure of the GSE.

Relationship between Return, Volume and Volatility in the Ghana Stock Market (Available on Internet)

This paper examines the relationship between trading volume, return and volatility in eight African stock markets by using daily data of thetrading volume andreturnof stock indices of these marketsduring the period from February 2004 to November 2012. The resultsreveal a positive contemporaneous relationship between trading volume and return for the stock markets of Morocco, Egypt and Kenya; which gives support,for these stock markets, to the mixture of distributions hypothesis(MDH). However, the inclusion of volume in the conditional variance equation does not eliminate the GARCH effect, meaning that volume is not a good proxy for the arrival of information into these markets – thus challenging MDH. Consideration of skewness by estimating the exponential GARCH model (EGARCH) shows that there is presence of leverage effect for the stock markets of Morocco, Egypt and South Africa; by contrast, for thestock markets of Kenya, Mauritius and Botswana, there is no leverage effect. With regard tothe stock markets of Nigeria and WAEMU (West African Economic and Monetary Union) the leverage ratio is negative but non-significant. Furthermore, the dynamic analysis revealed a bidirectional causality between return and trading volume in all eight markets with the exception of South Africa which showed a unidirectional causality from returns to trading volumes. These results support the sequential information arrival hypothesis (SIAH) in these markets.

Dynamics of The Relationship Between Trading Volume, Return And Volatility in African Stock Markets

The relationship between stock returns and trading volume observed in this research is based on 149 monthly data (mid-July 2005 to mid-December 2017) of NEPSE index. The relationship between stock returns and trading volume is examined using Autoregressive Distributed Lag approach. The research investigated the long-run and short-run relationship between trading volume and stock returns. The study detected significantly positive relationship between trading volume and stock returns in both long as well as short run. Therefore, the research concludes that impact of stock returns on trading volume is significant in Nepalese Stock Market, indicates that market participants use volume as an introduction of stock returns. From investment perspective, the relationship between trading volume and stock returns is of great importance to individuals who invest in share market instruments. Keywords : Trading volume, stock returns, ARDL approach

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Shiva Ram Shrestha

Papers

Stock Return and Trading Volume Relation in Nepalese Stock Market: An ARDL Approach