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Stock Price and Trading Volume - Essay Example

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The Volume and Price Change Per Se and the empirical evidence found. There are the bull markets and the bear markets, the volume is found to be relatively heavy within the bull markets and to be lighter within the bear markets. First bond market (20) tests had been developed by Epps as to sustain the above mentioned theory and then later tests were developed upon stock markets (22).
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Stock Price and Trading Volume
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Download file to see previous pages Wood, McInish, and Ord (71), had found contradicting evidence, in the price-volume relationship. For they established the ratio between the price change and trading volume to be greater for the share prices downticks.
Smirlock and Starks (64) had found that the relationship could only be supported during the time intervals when they could distinguish when the new information ex ante had reached the financial market. Due to the lack of the delivery of information to the financial market and the upbeat transaction costs, small amounts of evidence found that the relation had been lower for the up-ticks in the price than for the downticks.
Data collected over an hourly basis from an extensive market index by Jain and Joh (38), had discovered the trading volume relates positively to the enormity of the price change. Findings have shown though, that the volume is more sensitive towards the positive price changes in contrast to the
negative price changes. Epps, Hanna, Jain, Joh and parts of Smirlock and Starke's findings shown an implication of a positive correlation between the price change and trading volume per se. Ying's items (1) and (2) and a numerous number of researchers had found a similar positive correlation as found above.
Rogalski (60) had...
tedly found a positive correlation as well as Richardson, Sefcik, Thompson (58), Comiskey, Walkling and Weeks (12) all had found through tests on annual volumes of turnover and the price change to have positive traverse correlations. No such correlation had been found however by James and Edmister (39).
So by looking at the empirical evidence summarized in Table 2, the two features discussed are, all the findings are from data collected from stock and bond markets, unlike previously mentioned empirical correlations between the price change and trading volume, and the data collected has not been collected from any futures markets. The statistical results found are weak, certain correlations found by Rogalski were found to be low for example and there were a couple findings that were inconsistent with a positive relationship to be found.
Theoretical explanations by several authors of their findings, say the association of volume
with the methodical risk through to stock returns, suggested by Morgan (51). A positive correlation between the price change and trading volume had been implied by the 'mixture of distributions hypothesis', only if the conditional indication of the stock price procession is in proportion to the quantity of new information into the market. There is however an unclear sense as to how the above could actually work. For the MDH with indicating minority is inconsistent with the markets equal balance, since it implies that the price change expected is from the arrival of new positive information into the market.
Epps (20) found that a positive price change is cause for a larger volume on share transactions than for the negative price changes. His assumption that the 'bull' investors are optimists about their asset value at the close of the ...Download file to see next pagesRead More
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