Stock Market Credibility upon Trading Volume: Bohmian Quantum Potential Approach

ABSTRACT: Price return is an interesting factor for many investors; however, it is expected that the price return credibility to be affected by the trading volume of any given market as a complex system. In this study, the Bohmian quantum mechanics is used due to the time correlation of return and volume of the stock markets under consideration to investigate the relationship between these variables. The obtained results show that the quantum potential functions in the same manner for trading volume as the price return, and confines the variations of the volume to a specific interval. The joint quantum potential as a function of return and volume, defined by the probability distribution function (pdf) of a given market, serves as a suitable instrument to check the credibility of the market at higher volumes. As a result of the behavior of the pdf and the corresponding quantum potential, the variations of the price return at higher volumes decrease as the trading volume increases, making the market more credible which is more pronounced in developed markets. Further, it is shown that, the distance between the quantum potential walls of price returns can be a proxy for the risk of the relative stock index. In other words, the investigation of different return frequencies shows that the market risk increases as the distance between the potential walls increases. The magnitude of the risk is different for different indices allowing the traders to decide on their portfolio selection and their investment horizon. Our results are consistent with the behavior of the developed and emerging markets. Keywords: Price return, Trading volume, Joint quantum potential, Risk