Journal
EUROPEAN JOURNAL OF FINANCE
Volume 25, Issue 15, Pages 1402-1419Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/1351847X.2019.1599406
Keywords
Asymmetry; direct Granger causality; leverage effect; stock return-volume relationship
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Funding
- European Social Fund (ESF)
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In the aim to explore the complex relationships between S&P500, VIX and volume we introduce a Granger causality test using the nonlinear statistic of Asymmetric Partial Transfer Entropy (APTE). Through a simulation exercise, it arises that the APTE offers precise information on the nature of the connectivity. Our empirical findings concretize the information flow that links volume, S&P500 and VIX, and merge the leverage effect and the asymmetric stock return-volume relationship into a unified framework of analysis. More specifically, when we condition on the tails, the detected causal channel provides empirical validation of the noise trading contribution to large swings in financial markets, because of the increase of trading volume and the subsequent worsening ability of market prices to adjust to new information.
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