Journal
APPLIED ECONOMICS
Volume 47, Issue 36, Pages 3891-3906Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/00036846.2015.1019040
Keywords
return-volume relation; return-volatility relation; volume-volatility relation; information theory
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Information theory is used to examine the dynamic relationships between stock returns, volatility and trading volumes for S&P500 stocks. This provides an alternative approach to traditional Granger causality tests when dealing with nonlinear relationships. The article highlights the dominant role played by trading volumes in all of these relationships - even in the return-volatility relation - and finds evidence of a market level feedback effect from index returns to the return-volatility relation at the stock level. The article also produces a number of stylized facts from an information theoretic perspective.
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