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| What Causes the Influence of Trading Volume on Volatility: Trade Size or Number of Transactions? |
| MA Changfeng,CHEN Zhijuan |
| School of Finance, Zhejiang Gongshang University |
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Abstract Based on the daily data of individual stock and indices from 2001 to 2016 at Shanghai and Shenzhen Exchange, this paper establishes the contemporaneous positive correlation between trading volume and volatility. Decomposing volume into trade size and number of transactions, we find that either trade size or number of transactions is able to explain volatility respectively. When they both serve as independent variables to explain volatility, trade size has power to explain volatility in the after-2009 sample and whole sample, though it has no explaining power in the before-2009 sample. The explaining power of number of transactions on volatility manifests not only in both sub-samples but also in the whole sample after taking price impact into account, indicating the co-existence of the explaining power of both trade size and number of transactions on volatility within the China stock market. We also show that the positive correlation between trading volume and volatility during financial crisis is not significantly different from the normal period.
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Received: 04 May 2017
Published: 15 September 2017
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Corresponding Authors:
MA Changfeng
E-mail: 76418943@qq.com
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2017, Vol. 37 
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