Exploring the relationship between price volatility and trading volume in financial market has been a hot topic in the study of financial systems.Lamoureux and Lastrapes advance that the daily trading volume is a proper measure of the information arrivals at the market, but they assume that this impact of the trading volume on the price volatility is linear. In this paper, we propose a partially nonlinear GARCH model, together with local linear maximum likelihood estimation method, to examine the nonlinear relationship between the trading volume and the price volatility. Using the data sets of 20 stocks from the Chinese stock market, we empirically demonstrate that the impact of the trading volume on the stock price volatility is significantly nonlinear. An empirical parametric power function is also suggested for this nonlinear impact, which is more significantly reasonable than the linear impact hypothesis.
PENG Haiwei
, LU Zudi. , {{custom_author.name_en}}.
Nonlinear Analysis of Financial Systems: Exploring the Nonlinear Impact of the Trading Volume on the Price Volatility. Journal of Systems Science and Mathematical Sciences, 2009, 29(11): 1527-1541 https://doi.org/10.12341/jssms08483
PDF(780 KB)
