How does trading volume affect financial return distributions? |
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| Institution: | 1. Department of Econometrics and Business Statistics, Monash University, Malaysia;2. Department of Econometrics and Business Statistics, Monash University, Australia;3. Accounting and Finance, UWA Business School, The University of Western Australia, Australia;4. Finance Discipline Group, UTS Business School, University of Technology Sydney, Australia;1. College of Business, Zayed University, P.O. Box 144534, Abu Dhabi, United Arab Emirates;2. Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam;3. National University of Modern Languages, Islamabad, Pakistan;4. Montpellier Business School, 2300 Avenue des Moulins, 34185 Montpellier cedex 4, France;5. Poznan University of Economics and Business, Institute of Finance, Department of Investment and Financial Markets, al. Niepodleg?o?ci 10, 61-875 Poznań, Poland;6. National Research University Higher School of Economics, Russian Federation;7. Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam |
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| Abstract: | We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns. |
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