THE DEPENDENCE OF MARKET RETURN VOLATILITY ON TRADING VOLUME IN KOREA AND THAILAND
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The objective ofthis paper is to examine ifthe heteroskedasticity in stock market return data can be explained by incorporating trading volume as a mixing variable in the conditional variance equation. This study relies on daily returns and volumes of two developing markets in Asia, namely, the Korean Stock Exchange and the Stock Exchange o f Thailand over the 9-year tumultuous period o f 1990-1998. The results strongly suggest that the GARCH model adequately describes the two index return series in the absence of volume as a mixing variable. However, the introduction ofvolume does not succeed in eliminating orfor that matter significantly reducing the ARCH and GARCH effects.
Abstract
The objective ofthis paper is to examine ifthe heteroskedasticity in stock market return data can be explained by incorporating trading volume as a mixing variable in the conditional variance equation. This study relies on daily returns and volumes of two developing markets in Asia, namely, the Korean Stock Exchange and the Stock Exchange o f Thailand over the 9-year tumultuous period o f 1990-1998. The results strongly suggest that the GARCH model adequately describes the two index return series in the absence of volume as a mixing variable. However, the introduction ofvolume does not succeed in eliminating orfor that matter significantly reducing the ARCH and GARCH effects.