Relationship between stock return and trading volume

Abstract

This study investigates the empirical relationship between trading volume and stock returns volatility in US stock Market during the period from May 2005 to May 2011 by using ARCH, GARCH, EGARGH, TARGH, PGARGH and Component ARCH models. The analysis showed that the recent news of trading volume can be used to improve the prediction of stock price volatility. This study also found the evidence of leverage and asymmetric effect of trading volume in stock market and indicated that bad news generate more impact on the volatility of the stock price in the market. Moreover, Random walk model dominated the forecasting performance and it is considered as the best model followed by the TGARCH model. © 2012 Academic Journals Inc.