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Title:Surprise volume and heteroskedasticity in equity market returns PDF Logo
Authors:Wagner, Niklas
Marsh, Terry A.
Issue Date:2004
Series/Report no.:CEFS working paper series 2004-03
Abstract:Heterosedasticity in returns may be explainable by trading volume. We use different volume variables, including surprise volume - i.e. unexpected above-avergae trading activity - which is derived from uncorrelated volume innovations. Assuming eakly exogenous volume, we extend the Lamoureux and Lastrapes (1990) model by an asymmetric GARCH in-mean specification following Golstein et al. (1993). Model estimation for the U.S. as well as six large equity markets shows that surprise volume superior model fit and helps to explain volatility persistence as well as excess kurtosis. Surprise volume reveals a significant positive market risk premium, asymmetry, and a surprise volume effect in conditional variance. The findings suggest that, e.g., a surprise volume shock (breakdown) - i.e. large (small) contemporaneous and small (large) lagged surprise volume - relates to increased (decreased) conditional market variance and return.
Subjects:ARCH
trading volume
return volume dependence
asymmetric volatility
market risk premium
leverage effect
JEL:C13
G10
G15
Document Type:Working Paper
Appears in Collections:CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München

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