Modelling Conditional Volatility in Stock Returns and Trading Volume of Indian Stock Market

Abstract

The role of information re/eases in asset pricing has created enormous interest among researchers, academics and practitioners. The general perspective of the market is that higher the /eve/ of trading volume, the greater the movement in share prices and vice-versa. But this may not hold true every time. Lower trading volume may also induce the larger jumps in prices. The study aimed at modelling conditional volatility in stock returns and trading volume of 30 stocks of S&P BSE Sensex by using two asymmetric volatility models EGARCH and TGARCH with and without trading volume effects. Further, the study explores the impact of information flow on volatility with the inclusion of trading activity. The volatility persistence for individual stocks seems to be mixed. The results support that trading volume is an important variable in explaining conditional volatility in stock returns.