Causality and Volatility in the Firm Level Stock Returns and Volume in India- Evidence from National Stock Exchange

Abstract

The present study has undertaken a comprehensive investigation of co-movemen t in stock returns and volume change using daily National Stock Exchange data for twenty-one listed firms from 1996 to 2005. It is observed that the direction of causality between stock returns and volume change va ry over different periods and across firms. Generally there are causal relationships between volume and price over the full period. Once we take the three sub periods the relationship starts to weaken over the sub periods for most of the stocks. The study further indicates that most of the companies do no t show long-term spillover effect on volatility as evident generally in short run. However, some major players in Indian stock market show evidence of long-term spillover volatility effect. The study indica tes towards the presence of inefficiencies on the National Stock Exchange, which weakens in the later sub-period.