The Dynamic Relationship between Stock Volatility and Trading Volume from the Athens Stock Exchange

Abstract

The aim of this study is to examine the relationship between trading volume, change in trading volume and returns of Athens Stock Exchange index for the period of 25 June 2014 until 9 May 2014 through the comparison of various conditional heteroskedasticity models. In this study, GARCH model is chosen because it gives better estimations in modeling return volatility. The results of GARCH models indicate a significant positive relationship between trading volume and change in trading volume and returns of ASE index. Finally, this study also investigates the dynamic relationship between trading volume and change in trading volume and returns on ASE index using VAR models for the cointegration test, causality test, impulse response function and analysis of forecast error variance decomposition. The dynamic models show a directional causality between trading volume, change in trading volume and returns on ASE index from trading volume and change in trading volume to returns on ASE index.