Trading activity and stock price volatility : evidence from the Greek stock market

Abstract

In this dissertation the relationship between trading volume and stock return volatility is examined for the FTSE-20 Greek stocks. By using different measures of return volatility and trading activity, this study investigates the contemporaneous and the causal trading activity-volatility relation as well. The main purpose of this paper is to explore not only if any relation between these two variables exists but also if this relation is affected by the different measures of volatility and trading activity used. Our calculations provide evidence for a positive contemporaneous interaction and a feedback causal relationship between the two variables. Furthermore, it is tested if volatility persistence tends to disappear when the trading activity proxy is included in the conditional variance equation. In accordance with the findings from the US stock market our empirical results show that in the majority of cases GARCH effects tend to disappear when trading activity is included in the variance equation.