Contemporaneous and Causal Relationship between Returns and Volumes: Evidence from Nifty Futures

Abstract

Motivated by the mixture of distribution hypothesis (MDH) and sequential arrival of information hypothesis (SAIH), we investigate the relationship between intraday returns and volumes using derivatives data from the emerging Indian market. Using robust statistical estimation, we document the evidence of both MDH and SAIH in one of the most traded financial markets in India (and the world). We document the presence of strong positive association between returns and volumes. We further report the evidence of strong causality from intraday returns to volumes than vice versa.

Price-Volume Granger Causality Tests in the Egyptian Stock Exchange (EGX)

“…This strong and robust contemporaneous relationship implies that the recent EGX improvement initiatives may have had positive effects on the instantaneous incorporation of information into stock prices and trading volume, leading to the strong contemporaneous relationship between stock price changes and trading volume. As well, these results are consistent with our hypotheses and with previous studies (e.g., Chen, 2012;Li et al, 2016;Sampath and Garg 2018) that document a significant contemporaneous relationship between the two variables. The results also support two Wall Street adages: "it takes volume to move prices" and "volume is heavier in bull markets than in bear markets".…”

“…The significant positive relationship supports our second hypothesis (H 2 ) and implies that there is heavy trading volume associated with positive stock returns than negative stock returns. The strong positive association between returns and volume are not only consistent with prior literature (e.g., Karpoff, 1987;Hiemstra and Jones, 1994;Lee and Rui, 2002;Sampath and Garg, 2018) but also confirm the validity of another important Wall Street adage in the Egyptian stock market, that "volume is relatively heavy in bull markets and light in bear markets". With R 2 s that are greater than 15% for both regression models, we conclude that the price-volume models also fit the data well.…”

“…8, No. 3; Published by Sciedu Press 59 ISSN 1927-5986 E-ISSN 1927-5994 Chen (2012) and Sampath and Garg (2018), who find strong evidence of causality from returns to volume but not from volume to returns.…”

“…As Karpoff (1987), for instance observed, the relationship between price change and trading volume provides some of the best insights into the structure of financial markets. Following this rationalization, several authors have used the price-volume relationship to investigate the structure of financial markets, including Hiemstra and Jones (1994), Assogbavi et al (1995), Saatcioglu and Starks (1998), Lee and Rui (2002), Chen (2012) and Sampath and Garg (2018). We follow this strand of literature and use the price-volume relationship to investigate the hypothesis that stock returns and trading volume have a positive contemporaneous relationship as well as the hypothesis that there exist causal relationships between stock price changes and trading volume in the Egyptian stock exchange.…”

Price-Volume Relationship in Bitcoin Futures ETF Market: An Information Perspective

“…Our results suggest that the contemporaneous and intertemporal dependence between returns and volume changes can both exist in a market, indicating that it may be not enough to describe the price-volume dynamics in a complex market with the mixture distribution hypothesis or the sequential information arrival hypothesis alone. Literature [14,15,57,58] also found this phenomenon in other markets.…”