The relationship between stock return volatility and trading volume: The case of the Philippines

College

Ramon V. Del Rosario College of Business

Department/Unit

Economics

Document Type

Article

Source Title

Applied Financial Economics

Volume

18

Issue

16

First Page

1333

Last Page

1341

Publication Date

9-1-2008

Abstract

This article reconsiders the relationship between stock return volatility and trading volume. Based on the multi-factor stochastic volatility model for stock return, we suggest several specifications for the trading volume. This approach enables the unobservable information arrival to follow the ARMA process. We apply the model to the data of Philippine Stock Exchange Composite Index and find that two factors are adequate to describe the movements of stock return volatility and variance of trading volume. We also find that the weights for the factors of the return and volume models are different from each other. The empirical results show (i) a negative correlation between stock return volatility and variance of trading volume, and (ii) a lack of effect of information arrivals on the level of trading volume. These findings are contrary to the results for the equity markets of advanced countries.

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Digitial Object Identifier (DOI)

10.1080/09603100701604274

Disciplines

Economics

Keywords

Stocks—Prices

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