Stock and Market Trading Volume as Factors of Return Volatility

Abstract:

This study examined the relationships between conditional volatility of individual stock returns and stocks and market trading volume and mixed variable in terms of trading volume with price movement indicator. Using GARCH(1,1) model specification in the sample of 20 stocks listed on the Warsaw Stock Exchange the results reveal a decreasing of volatility persistence in nineteen stocks when contemporaneous trading volume was added to the variance equation. The model with indicator variables demonstrates a reduction of the persistence in all stocks compared to the model without any exogenous variables. Moreover, the model with stock volume outperforms the model with market volume for all stocks as far as persistence reduction. Models with both market trading volume and market price movement find a much greater impact of market volume on stocks volatility in downward market price movement than in upward market price movement.