An Event-Based Approach for Dynamic Volume Return Relationships of DAX Companies

22 Pages Posted: 8 Aug 2008

See all articles by Roland Mestel

Roland Mestel

University of Graz

Alexander Brauneis

University of Klagenfurt

Date Written: August 8, 2008

Abstract

Several recent papers report market returns and returns of individual securities to carry informational content about future trading volume of individual stocks. In addition some authors identify significant abnormal returns of stocks that currently exhibit high volume.

This paper conducts a comprehensive empirical examination of the implications of the above outlined findings for the German stock market, concretely for the most liquid stocks.

We do this by applying event based methodology, which roughly means, that the stock market as a whole and individual securities themselves are clustered into states of volume and returns. For each date we identify the prevailing level of returns and volume, which allows us to categorize days into different events. Strictly peaking events in our sense are not rarely distributed over the data sample, however each day marks an event in terms of signalling a certain state of the stock market to market participants.

Dependencies between market-wide/security-specific returns and volume are separately analyzed for each cluster. We examine the performance of individual stocks in each cluster and take the whole market as a benchmark, which allows to statistically check for abnormal volume and returns.

Furthermore we apply vector-autoregressive models, that do not only capture dynamic structures within market data, but also allow to check for temporal causalities between volume and return. Again for each cluster, we analyze Granger-causalities between volume and market/security returns.

Our preliminary results indicate only weak relations between volume and returns, however, with our methodology and possibly due to the specific data set of the most liquid German stocks, we find little statistical significance.

Keywords: Volume-Return Relations, Event Study Methodology

Suggested Citation

Mestel, Roland and Brauneis, Alexander, An Event-Based Approach for Dynamic Volume Return Relationships of DAX Companies (August 8, 2008). Available at SSRN: https://ssrn.com/abstract=1212222 or http://dx.doi.org/10.2139/ssrn.1212222

Roland Mestel

University of Graz ( email )

Institute of Banking and Finance
Universitaetsstrasse 15/F2
A-8010 Graz
Austria
+43 316 380 7304 (Phone)
+43 316 380 9580 (Fax)

Alexander Brauneis (Contact Author)

University of Klagenfurt ( email )

Universitaetsstrasse 65-67
Klagenfurt, 9020
Austria
+43 463 2700 4022 (Phone)
+43 463 2700 4092 (Fax)

HOME PAGE: http://www.aau.at/fin

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