Information arrival and volatility: Evidence from the Saudi Stock Exchange (Tadawul)

Abstract

This paper investigates the validation of the Mixture of Distributions Hypothesis (MDH) using trading volume and number of trades as contemporaneous proxies for information arrival in 15 sector indices of the Saudi Stock Exchange (Tadawul) using the TGARCH model. Findings provide strong evidence for the validity of the MDH for the Saudi market. Volatility persistence decreases when the trading volume and the number of trades are included in the conditional variance equation. The most striking finding is that contemporaneous number of trades is a better proxy for information arrival than trading volume, interacting with volatility in a manner anticipated under the MDH. This can be attributed to the unique characteristic of the Saudi equity market where only domestic investors are allowed to execute trade transactions. Further, the results reveal that the leverage effect was amplified, indicating a more pronounced asymmetric effect of bad news on volatility.

Intraday return volatility in Saudi Stock Market: An evidence from Tadawul All Share Index

“…The asymmetric results of the current study support the study of Ezzat and Uludag (2014), and are contrary to the previous research works of Haniff and Pok (2010), Goudarzi and Ramanarayan (2011), Abdalla and Winker (2012). We have explained the best model by comparing the fitness of different GARCH models with the help of the Log likelihood (LL), the Akaike Information Criterion (AIC), and the Schawrz Information Criterion (SIC).…”

Trading Activities and the Volatility of Return on Malaysian Crude Palm Oil Futures

“…The mixture of distribution hypothesis (MDH) suggested by Clark (1973) and the sequential information arrival hypothesis (SIAH) suggested by Copeland (1976) have been widely used to document the relationship between price changes and trading volume. According to Ezzat and Kirkulak-Uludag (2016), MDH assumes that all market participants receive new information simultaneously and reach a new price equilibrium immediately without partial equilibrium. Therefore, return volatility and trading activities are correlated contemporaneously.…”