The Dynamics of Trading Volume Activity and Stock Returns: A Case of Karachi Stock Exchange (KSE)

Abstract

This study is about the interralshionship of the trading volume activity and stock returns
in the Karachi Stock Exchange (KSE). The monthly trading volume data and also the
monthly stock returns were taken for a period of 1995 to 2012. Both the series were
found to be stationary at level. The findings of the study show that the trading volume is
positively related to the stock returns. Further the results suggest that the ARCH effect is
not active i.e the past square residuals have no effect on the stock return volatility or
variations. While on the other hand the GARCH effects are present i.e the lagged
variances have a significant positive effect on stock returns. The value of ë is negative
and significant i.e trading volume volatility has a significant negative relationship with
stock returns in KSE.
Key Words: Trading volume, Volatility, Stock returns, causality