The relationship between stock return volatility and trading volume volatility: Comparison of developed and developing countries

The purpose of this study is to put forward the causality relationship between stock return volatility and trading volume volatility in developed and developing countries. Accordingly, dollar-denominated daily prices, and quantity-denominated daily trading volume of the S&P 500, Tayvan Weighted, Hang Seng, Nikkei 225, FTSE 100, Shangai Composite, SET, Jakarta Stock Exchange Composite, BIST 100 ve S&P BMV IPC BIST 100 Indexes for the period 04.01.2010-28.08.2019 have been considered in the study. First of all in the study, structural breaks in the variance of the series have been investigated by Sanso et al. (2004). Then, according to the findings obtained from structural break in the variance, the most appropriate GARCH, EGARCH and GJR-GARCH model of return and trading volume series have been investigated with student t and skewed student distributions and The most suitable model of volatility has been determined by Kupiec LR and expected shortfall tests from the obtained models. Finally, the causality relationship between stock return volatility and trading volume volatility has been investigated with the Hafner and Herwartz (2006) causality in variance test. According to the analyzes (except Taiwan), generally, it is found that there is a unidirectional causality relationship from the volatility of trading volume to stock return volatility in developed countries. The findings put forward that the Mixed Distributions Hypothesis is valid in developed countries. According to the analysis of developing countries (except China and Mexico), generally, it is determined that there is a bidirectional causality relationship between stock return volatility and trading volume volatility in the related countries. The findings show that the Sequential Information Flow Hypothesis is valid in developing countries. Key Words: Stock Return Volatility, Trading Volume Volatility, Volatility Models, Kupiec LR Test, Expected Shortfall Test