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A PROJECT REPORT
Submitted in partial fulfilment for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION
MACHA HARISH (089518)
SCHOOL OF MANAGEMENT NATIONAL INSTITUTE OF TECHNOLOGY
(An Institute Of National Importance )
WARANGAL ANDHRA PRADESH, 506021 APRIL-JUNE, 2010
Certified that the Project report titled Empirical Investigation Of Relationship Between Stock Return, Trading Volume And Volatility: Evidence From Indian Stock Market is the bonafide work of Mr. MACHA HARISH, 089518 who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.
Dr. K.PADMA ASSOCIATE PROFESSOR S. O. M, N. I. T WARANGAL. Signature of Supervisor
Dr. C. SURYA PRAKASH RAO HEAD, S. O. M N. I. T WARANGAL Signature of HOD
I hereby declare that the project entitled ³Empirical Investigation Of Relationship
Between Stock Return, Trading Volume And Volatility: Evidence From Indian Stock Market ´ submitted for the M.B.A. Degree is my original work and the
dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles.
Place: Date: MACHA HARISH
INDIABULLS SECURITIES LIMITED |
This paper empirically examines the relationship between returns, volatility and trading volume for 50 Indian stocks from NSE NIFTY index. Two measures of trading volume namely number of shares traded and value of shares traded are used. The correlations between the two measures of daily trading volume are examined using Pearson¶s correlation .Asymmetric relation between level of trading volume and returns is examined using linear regression. In case of volatility, the asymmetric relation is examined between unconditional volatility and volume using linear regression. The evidence for positive asymmetric relation between returns and volume as well as unconditional volatility and volume is found. We also find that the level of Return is dependent on the direction of daily volume change in case of 80% of the stocks in the sample when we take value of shares as measure for daily volume so it is better to use share value as proxy for predicting the stock return.
INDIABULLS SECURITIES LIMITED |
NAME OF THE CONTENT
Chapter 1: Introduction Introduction Scope of the study Statement of the problem Objectives of the study Research Methodology
1-4 1-2 3 3 3 4 5-16 5-12 13-16 17-25 17-22 23-25 26-42 26-32 33-42 43-47 45 46 46 46 47 48-49
Chapter 2: Profiles Industry profile Company profile
Chapter 3: Review of Literature Conceptual and theoretical review Research review
Chapter 4: Data analysis & Interpretation Analysis 1 Analysis 2
Chapter 5: Conclusion Results and Discussions Directions for further research Limitation Conclusion Suggestion
INDIABULLS SECURITIES LIMITED |
1.4 Table 4.1.1 Table 4.2.4 Table 4.2 Table 4.2.3 Table 4.2.1.LIST OF TABLES S.2 Table 4.2. Relationship between Standardized Trading Volume (Volume of shares) and Unconditional Volatility Relationship between Standardized Trading Volume (Value of shares) and Unconditional Volatility 1 2 3 4 5 6 7 8 9 Table 4. Volume Pearson Correlation Between Measures Of Daily Trading Volume Relationship Between Standardized Trading Volume (Number Of Shares) And Returns Relationship Between Standardized Trading Volume (Value Of Shares) And Returns.1.NO Table Name of the Item List Of Constituents Of S&P CNX Nifty Sample Summary Statistics Of Return Year Wise Description Of Average Daily Measurements Of Trading Volume Of Nifty Stocks Sample Summary Statistics Of Value.2.1 Table 4.3 Table 4.5 INDIABULLS SECURITIES LIMITED | 6 .
CHAPTER-I INTRODUCTION INDIABULLS SECURITIES LIMITED | 7 .
the extent to which market prices convey the information. For example.. 1. Return-volume relationships are of common interest as they may unearth dependencies that can form the basis of profitable trading strategies. it provides insight into the structure of financial markets. it is observed from the prior literature1 that stock prices are noisy which can¶t convey all available information to market dynamics of stock prices and trading volume. set al. the volume-price variability relationship may have important implications for fashioning new contracts. (1986) and Weiner (2002) have investigated the role of speculation to price volatility (stabilizing or destabilizing).. such as the rate of information flow to the market. how the information is disseminated. Thus. 3. Karpoff (1987) cited four reasons for discussing price-volume relation. While return can be interpreted as the evaluation of new information. Moreover. some researchers. and the existence of short sales constraints. Murphy (1985) and DeMark (1994) emphasized that both volume and price incorporate valuable information. A positive volume-price INDIABULLS SECURITIES LIMITED | 8 . volume is an indicator to which the investors disagree about this information. A technical analyst gives less significance to a price increase with low trading volume than to a similar price increase with substantial volume. Firth and Yu (2004)). where speculation is closely related to trading volume. as Cornell (1981) pointed out. Second. such as Peck (1981). the relationship between price and volume can be used to examine the usefulness of technical analysis. 2. and this has implications for market efficiency (Chen. B. First. 4. it is in the interest of the economy to achieve efficiency in the dynamics of the stock markets. Third. Finally.. Return and volume are two major pillars. around which entire stock market revolves. studying the joint dynamics of stock prices and trading volume is essential to improve the understanding of the microstructure of stock markets (Mestal et al. Garcia et al. with far-reaching implication for its macroeconomic stability and performance (Stefano.1. (2003)). Therefore. (2006)).1 INTRODUCTION The emergence of informational efficient financial markets is an important facet of any country¶s economic modernization.
variability relationship means that a new futures contract will be successful only to the extent that there is enough price uncertainty associated with the underlying asset. financial time series behave in such a way that does not conform to the normality distribution. Some researchers have made attempts to evaluate return-volume relationship in Indian stock market but these are elementary efforts and moreover. Thus. Financial literature has documented the various types of the return-volume relationship especially in US stock markets (see survey in karpoff (1987)). some additional results from other emerging financial markets are needed to better understand the price-volume relationship. relatively little attention has been devoted to this relationship in India. the studies have failed to take the phenomena of volatility persistence/volatility clustering in return-volume relationship.. This paper represents one such attempt to investigate returns. volatility and trading volume relationship in Indian Stock market. the relationship between return. INDIABULLS SECURITIES LIMITED | 9 . In addition. to improve the understanding of the microstructure of stock market. the return-volume relationship sheds light on the efficiency of stock markets. By contrast. (2005). Given the mixed results between price and trading volume especially in emerging markets context. Very few studies have examined the pricevolume relationship in Indian market. volume and volatility has received substantial attention in the market microstructure for a number of years. As cited in Huson Joher et al.
and the existence of short sales constraints. INDIABULLS SECURITIES LIMITED | 10 . the extent to which market prices convey the information.4 OBJECTIVES OF THE STUDY y To determine the relation between return and the daily trading volumes. And this relation gives an easy accessible tool for the retail investors to predict the stock returns. y To examine the usefulness of the technical analysis because a technical analyst gives less significance to a price increase with low trading volume than to a similar price increase with substantial volume.2 SCOPE OF THE STUDY y My duration of study is from January 2000 to December 2009 since we can observe major fluctuations in the stock market during this period. 1. By finding out their relationship we can predict the future returns and volatility based on daily trading volume. This is also very much helpful for the technical analysts because they give less significance to a price increase with low trading volume than to a similar price increase with substantial increase in the volume. y To determine the relation between the price volatility and trading volume.3 STATEMENT OF THE PROBLEM In the stock market predicting the return and volatility of stocks is a major concern for any investor. 1.1. y To understand the rate of information flow in to the market. return and volatility. so in order to predict the return and volatility in this study we try to find out the asymmetric relation between trading volume. how the information is disseminated. y Stock market is a huge area of research which can be affected by various external factors but my focus is only on Indian stock market especially on the NIFTY 50.
10. Rt is logarithmic daily percentage return at time t and Pt±1 and Pt are daily price of an asset on two successive days t-1 and t respectively Data : Secondary data Number of observation points : 1. Table 1 provides the list of these companies. linear regression. S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the Indian economy. Data has been collected for the period of 1st January 2000 to 31st December 2009. The data set consists of 1. Descriptive statistics INDIABULLS SECURITIES LIMITED | 11 . industry type and the period considered in the analysis.10. For companies that were listed after 1st January 2000. number of shares traded and total value of shares). 1. the data has been taken from the listing date to 31st December 2009. The percentage return of the stock is defined as Rt = ln *100 Where. The daily adjusted closing prices have been used for estimating daily returns.y To provide good investment advices to the institutional investors and retail investors based on return and volume relationship.5 RESEARCH METHODOLOGY In this study our data set consists of all the stocks of S&P CNX Nifty Index.000 Statistical tool Analysis : SPSS : Pearson¶s correlation.000 data points of adjusted daily closing prices and three different measures of daily volume (number of transactions.
CHAPTER-II PROFILES INDIABULLS SECURITIES LIMITED | 12 .
Though the trading list was broader in 1839. there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped. these are securities listed on a stock exchange as well as those only traded privately.1 INDUSTRY PROFILE Stock Market A stock market is a public market for the trading of company stock and derivatives at an agreed price. This allows businesses to be publicly traded. a disastrous INDIABULLS SECURITIES LIMITED | 13 . The two important exchanges in india are the BSE and NSE. The stock market is one of the most important sources for companies to raise money. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. or raise additional capital for expansion by selling shares of ownership of the company in a public market. The number of brokers increased to about 200 to 250.2. This is an attractive feature of investing in stocks. at the end of the American Civil War. Its history dates back to nearly 200 years ago. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. However. the 'Share Mania' in India begun. in 1865. Evolution Indian Stock Markets are one of the oldest in Asia. thus. The earliest records of security dealings in India are meagre and obscure. compared to other less liquid investments such as real estate.
The latter is permitted only in the case of specified shares. In 1895. The brokers who carry over the outstanding pay carry over charges (cantango or backwardation) which are usually determined by the rates of interest prevailing. where a member can act as a jobber or a broker only. Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. the Stock Exchange at Bombay was consolidated. growth-oriented companies with a paid-up capital of at least Rs.000 shareholders are. Thus. namely. At the end of the American Civil War. 87). found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business.slump began (for example. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract" : and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". They are broadly divided into two categories. put in the specified group and the balance in non-specified group. Trading Pattern of the Indian Stock Market Trading in Indian stock exchanges are limited to listed securities of public limited companies. the "Native Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange "). the brokers who thrived out of Civil War in 1874. the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. In 1887. INDIABULLS SECURITIES LIMITED | 14 . buy and sell securities on his own account and risk. buy and se ll securities for his clients on a commission basis and also can act as a trader or dealer as a principal. in contrast with the practice prevailing on New York and London Stock Exchanges. specified securities (forward list) and non-specified securities (cash list).50 million and a market capitalization of at least Rs.100 million and having more than 20. they formally established in Bombay. Equity shares of dividend paying. normally. A member broker in an Indian stock exchange can act as an agent.
or at a discount/premium and these securities may take a variety of forms such as equity. Secondary Market The segment of secondary market is a place where scripts are traded to provide liquidity to scripts which were issued in the primary market. The corporate entities issue mainly debt and equity instruments (shares. Securities Market The securities market has two interdependent and inseparable segments.The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. The more the number of companies enters the primary market the greater is the volume trade at the secondary market. They may issue the securities in domestic market and/or international market. There are two major types of issuers who issue securities. The trading activities in the secondary market is done through the recognized stock exchange INDIABULLS SECURITIES LIMITED | 15 .). The price signals. generated in the secondary market. help the primary market in allocation of funds. A public issue does not limit any entity in investing while in private placement. government as well as corporate. the new issues (primary market) and the stock (secondary) market. 1956. debt etc. etc. an issue becomes public if it results in allotment to more than 50 persons. Thus the growth of the secondary market is very much dependent upon the primary market. which subsume all information about the issuer and his business including associated risk. there is a great amount of effort to modernize the Indian stock exchanges in the very recent times. They may issue the securities at face value. This means an issue resulting in allotment to less than 50 persons is private placement. The primary market issuance is done either through public issues or private placement. debentures. treasury bills). to raise resources to meet their requirements of investment and/or discharge some obligation. the issuance is done to select people. Primary market provides opportunity to issuers of securities. In terms of the Companies Act. However. while the governments (central and state governments) issue debt securities (dated securities. Primary Market The primary market provides the channel for sale of new securities.
for buying and selling of scripts. SEBI has issued Capital Adequacy Norms for brokers consisting of base Minimum Capital.e. SEBI has taken several steps to control and regulate the secondary market in India which includes expansion of stock exchange centers and their integration. 2. Portfolio Manager.i. Investment Manager. Members/broker of a stock exchange i. 4. conduct and registration of brokers.e. Transfer Agent. Circuit Breakers system was introduced at Mumbai stock exchange and other exchanges to stop trading in particular scrip fluctuating beyond 8% in some scripts for the previous day¶s closing prices. Mainly the secondary market operations involved in buying and selling of securities on the stock exchange through its members the companies hitting the primary market are mandatory including a regional stock exchange. Brokers were advised to keep separate accounts for clients and not to touch the funds of clientele sale realizations. 2. ICSE (inter connected stock exchange of India) is yet to make its beginning shortly. improvement in trading system and settlement procedures.. OTCEI was permitted to trade in unlisted scripts. transparency in trading activities. portfolio managers. sub-brokers prohibition of insider trading. Additional capital related to volume of business. Further mutual funds have also been brought under the purview of the SEBI Recent Developments In Secondary Market 1. Odd Lot trading sessions was separated to ensure trading in odd lots conveniently. 1. 4. hut listed on Mumbai stock exchange along with debentures. eligibility norms of membership. NSE was incorporated to compete with other stock exchanges which went fully automated and available to a common investor by means of terminals spreading all over the country 3. Registration of brokers. margins. Apart from this. The following intermediaries are involved in the secondary market. INDIABULLS SECURITIES LIMITED | 16 . capital adequacy norms. SEBI has issued several guidelines and regulations on secondary market. 3. 5.
6. the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India. Wholesale debt market operations are similar to money market operations institutions and corporate bodies enter into high value transactions in financial instruments such as government securities. etc. Delay in transfers.e. The systems of corporate members were introduced in all exchanges and the Exemption of capital gain was extended till 3l December 1998. National Stock Exchange (NSE) With the liberalization of the Indian economy. Rolling settlement was introduced in some shares for the purpose of encouraging the buying and selling shares only by the genuine buyers or investors and to avoid excess speculation. 8. selected commercial banks and others. commercial paper. 9. INDIABULLS SECURITIES LIMITED | 17 . 10. public sector unit bonds. it was found inevitable to lift the Indian stock market trading system on par with the international standards. Reduction of transfer expenses. certificate of deposit. The Demat system was started i. Reducing settlement delays and reducing market lot share to 1.. Forward trading was banned from 15th march 1994. Industrial Finance Corporation of India. Compulsory Market Making concept was introduced. 7. Industrial Credit and Investment Corporation of India. 12. On the basis of the recommendations of high powered Pherwani Committee. Jumbo share concept of larger denomination share certificates was introduced with a view to mitigate the problems of custodian of Indian and Foreign Financial Institutions. trading the scripts in the dematerialized form for the purpose of avoiding Bad deliveries. all Insurance Corporations. Trading at NSE can be classified under two broad categories: (a) Wholesale debt market and (b) Capital market. 11. Capital gain Tax Rules were liberalized. treasury bills.
late payments and the malpractice¶s prevailing in the traditional trading mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations. And capital market being one of the major source of long-term finance for industrial projects. NSE has several advantages over the traditional trading exchanges. They are as follows: y y NSE brings an integrated stock market trading network across the nation. INDIABULLS SECURITIES LIMITED | 18 . y Delays in communication. small investors and foreign investors will not be interested in capital market operations. When the prices match the transaction will be completed and a confirmation slip will be printed at the office of the trading member. In this regard NSE gains vital importance in the Indian capital market system. Participants include trading members and large players like banks who take direct settlement responsibility. The prices at which the buyer and seller are willing to transact will appear on the screen. Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. India cannot afford to damage the capital market path. Investors can trade at the same price from anywhere in the country since inter-market operations are streamlined coupled with the countrywide access to the securities. NSE-50 INDEX (NIFTY) This Index is built by India Services Product Ltd (IISL) and Credit Rating Information Services of India Ltd (CRISIL). Recognized members of NSE are called trading members who trade on behalf of themselves and their clients. with the support of total computerized network.There are two kinds of players in NSE: (a) Trading members and (b) Participants. since they are linked through a communication network. Unless stock markets provide professionalised service. Trading members can stay at their offices and execute the trading.
The selection criteria are the market capitalization and liquidity. 5 billion or more. ³Nifty´ means National Index for Fifty Stocks.NSE-50 Index was introduced on April 22.200 crores and should have traded 85% of trading days at an impact cost of less than 2.5%. The company scrip should be traded for 85% of the trading days at an impact cost less than 1. The NSE Midcap Index or the Junior Nifty comprises 50 stocks that represents 21board industry groups and will provide proper representation of the madcap segment of greater than Rs. The base period for the Nifty index is the closing prices on November 31st 1995. The market capitalization of the companies should be Rs. The base period is selected to commensurate the completion of one ² year operation of NSE in the stock market. The base value of index is at 1000 with the base capital of Rs.5%. INDIABULLS SECURITIES LIMITED | 19 . 1996 to serve as an appropriate index for the new segment of futures and options.2. This signifies two years for completion of operations of the capital market segment of the operations. The base period for the index is Nov 4th. 1996.06 of trillion. The base value of the index has been set at 1000.
Indiabulls Group has four separately listed companies with subsidiaries which contributed in enhancing scope and profile of the business Indiabulls Securities Limited Indiabulls Securities Limited was originally incorporated in India on June 9 1995 under the Companies Act as a private limited company as GPF Securities Private Limited under certificate of incorporation bearing number 55-69631. Financial Services.Indiabulls Group companies are listed in Indian and overseas financial markets. Securities. Infrastructure.2 COMPANY PROFILE Indiabulls Group is one of the top business house in the country with business interests in Real Estate. INDIABULLS SECURITIES LIMITED | 20 . The Company was subsequently converted into a public limited company and its name was further changed to Orbis Securities Limited on January 5 2004.The name of the Company was again changed to Indiabulls Securities Limited on February 16 2004.2. The name of the Company was changed to Orbis Securities Private Limited on December 15 1995. The net worth of the Group exceeds USD 2 billion. Multiplex and Power Sectors. Retail.
debentures etc. commodity and review along with technical analysis of the market. It deals in research work and formation of reports on agri-commodites and metals. The products and services offered include securities. bonds. 21 INDIABULLS SECURITIES LIMITED | . PRODUCTS y y y y y y y Power indiabulls( PIB) Indiabulls Signature Account Depository Services NRI Trading IPO Online Equity Analysis Currency Derivatives Equities and Derivatives y y y y Offers purchase and sale of securities (stock. Indiabulls also provide commodity brokerage services under Indiabulls Commodities Limited (ICL). mutual fund news. ICL has one of the largest retail branch networks in the country.Indiabulls Securities Limited is the jewel in the crown of Indiabulls group. demat account for share trading.) Broker assisted trade execution Automated online investing Access to all IPO's Equity Analysis y y y Helps to build ideal portfolio Satisfies need by rating stocks based on facts-based measures Free of cost for all securities clients Depository Services y Depository participant with NSDL and CDSL. credit services.
y y y Helps in trading and settlement of dematerialized shares Performs clearing services for all securities transactions Offers platform to execute trade and settle transaction Organizational Structure Settlement Charges y y y Account opening charges : 900 Rs ( NON-REFUNDABLE) No Annual Maintenance Charges ( AMC ) SETTLEMENT CHARGES: INTRADAY DELIVERY INDIABULLS SECURITIES LIMITED | 22 .
Indiabulls Securities Ltd is listed on NSE.4 times Milestones y y Developed one of the first Internet trading platforms in India Amongst the first to develop in-house real-time CTCL (computer to computer link) with NSE y Introduction of integrated accounts with automatic gateways to client bank accounts y y y y Development of Products such as Power Indiabulls for high volume traders Indiabulls Signature Account for self-directed investors Indiabulls Group Professional Network for information and trading service Indiabulls Securities is the first and only brokerage house in India to be assigned the highest rating BQ ± 1 by CRISIL.Charges : 3 paisa for 100 Rs Exposure: 6-12 times 35 paisa for 100 Rs 2 . BSE & Luxembourg stock exchange. INDIABULLS SECURITIES LIMITED | 23 .
CHAPTER III LITERATURE SURVEY INDIABULLS SECURITIES LIMITED | 24 .
It is a negative relationship because high scores on the X-axis are associated with low scores on the Y-axis." Pearson's correlation reflects the degree of linear relationship between two variables. The most common measure of correlation is the Pearson Product Moment Correlation (called Pearson's correlation for short).1 CONCEPTUAL AND THEORITICAL SURVEY Pearson's Correlation The correlation between two variables reflects the degree to which the variables are related. A correlation coefficient of +1 means that there is a perfect positive linear relationship between variables.3. The scatter plot shown below depicts a negative relationship. The second graph shows a Pearson correlation of 0. INDIABULLS SECURITIES LIMITED | 25 . A correlation of 0 means there is no linear relationship between the two variables. it is designated by the letter "r" and is sometimes called "Pearson's r. It is a positive relationship because high scores on the X-axis are associated with high scores on the Y-axis. The scatter plot shown on this page depicts such a relationship. When measured in a population the Pearson Product Moment correlation is designated by the Greek letter rho ( ). It ranges from +1 to -1. When computed in a sample. A correlation coefficient of -1 means that there is a perfect negative linear relationship between variables.
that the equation above can be replaced by an eq uivalent formula which avoids use the means and is therefore much faster to calculate: The correlation coefficient stands in close relationship to linear regression. The square of r is called the goodness of fi and denotes the portion of total variance explained by the regression model. ¡ INDIAB ¤ £¢ ¡¡ SS ITIES IMITED | 26 .0 and +1.0. Assumptions: y y y y linear relationship bet een x and y continuous random variables both variables must be normally distributed x and y must be independent of each other Please note.The correl tion coefficient r (al o called Pearson's product moment correlation afterKarl Pearson) is calculated by The correlation coefficient may take any value bet een -1.
the goal of linear regression is to find the line that best predicts Y from X. X and Y. or compare the slopes and intercepts of two or more regression lines. optionally including a 95% confidence interval or 95% prediction interval bands. The term "regression" is now used for many sorts of curve fitting. In some situations. You may also force the line through a particular point (usually the origin). Minimizing sum-of-squares The goal of linear regression is to adjust the values of slope and intercept to find the line that best predicts Y from X. The method was first used to examine the relationship between the heights of fathers and sons. Note that linear regression does not test whether your data are linear (except via the runs test). In other cases. is used in statistics quite differently than it is used in other contexts.0. In general. a short father tended to have sons taller than himself.Linear Regression Linear regression analyzes the relationship between two variables. The height of sons regressed to the mean. like many statistical terms. A procedure that minimized the sum of the absolute value of the distances would have no preference over a line that was 5 units away from two points and one that was INDIABULLS SECURITIES LIMITED | 27 . you use the linear regression line as a standard curve to find new values of X from Y. The term "regression". it is far more likely to have two medium size deviations (say 5 units each) than to have one small deviation (1 unit) and one large (9 units). More precisely. calculate a runs test. or Y from X. It assumes that your data are linear. Why minimize the sum of the squares of the distances? Why not simply minimize the sum of the actual distances? If the random scatter follows a Gaussian distribution. A tall father tended to have sons shorter than himself. calculate residuals. For each subject (or experimental unit). Linear regression does this by finding the line that minimizes the sum of the squares of the vertical distances of the points from the line. and finds the slope and intercept that make a straight line best fit your data. Prism determines and graphs the best-fit linear regression line. The two were related. you know both X and Y and you want to find the best straight line through the data. the slope and/or intercept have a scientific meaning. but the slope is less than 1. of course. the goal of regression is to minimize the sum of the squares of the vertical distances of the points from the line.
Y increases as X increases. Y decreases as X increases. It is expressed in the units of the Y-axis divided by the units of the X-axis. The calculations are shown in every statistics book. r2. a measure of goodness-of-fit of linear regression INDIABULLS SECURITIES LIMITED | 28 . It defines the elevation of the line. and that the 95% confidence interval for the intercept contains the true value of the intercept. If you accept the assumptions of linear regression. The standard error values of the slope and intercept can be hard to interpret. along with their standard errors and confidence intervals. the line determined by minimizing the sum-of-squares is most likely to be correct. there is a 95% chance that the 95% confidence interval of the slope contains the true value of the slope. The Y intercept is the Y value of the line when X equals zero. If the slope is negative. If the slope is positive. The slope quantifies the steepness of the line. The sum of the distances (more precisely. Slope and intercept Prism reports the best-fit values of the slope and intercept.1 unit away from one point and 9 units from another. It equals the change in Y for each unit change in X. If the scatter is Gaussian (or nearly so). A procedure that minimizes the sum of the squares of the distances prefers to be 5 units away from two points (sum-of-squares = 50) rather than 1 unit away from one point and 9 units away from another (sum-of-squares = 82). the sum of the absolute value of the distances) is 10 units in each case. but their main purpose is to compute the 95% confidence intervals. and are entirely standard.
907 in this example. To use this value as a measure of goodness-of-fit. The equation to compute r2 is shown in the figure. all points lie exactly on a straight line with no scatter. You can think of r2 as the fraction of the total variance of Y that is "explained" by INDIABULLS SECURITIES LIMITED | 29 . r2 would be near zero. An r2 value of 0.0.0.0 means that knowing X does not help you predict Y. When r2 equals 1. 4. There is no linear relationship between X and Y.0.The value r2 is a fraction between 0. and r2 is near 1. Those vertical distances are also shown on the left panel of the figure. The ratio of the two sum-of-squares values compares the regression model with the null hypothesis model. If the regression model were not much better than the null hypothesis.0 and 1. The right half of the figure shows the null hypothesis -.a horizontal line through the mean of all the Y values. you must compare it to something. the sum of squares of those distances (SSreg) equals 0. In this example r2 is 0. so SSreg is much smaller than SStot. The left panel shows the best-fit linear regression line This lines minimizes the sumof-squares of the vertical distances of the points from the line. Goodness-of-fit of this model (SStot) is also calculated as the sum of squares of the vertical distances of the points from the line. The regression model fits the data much better than the null hypothesis. and the best-fit line is a horizontal line going through the mean of all Y values. In this example.86. Knowing X lets you predict Y perfectly.8248. Its units are the units of the Y-axis squared. This figure demonstrates how Prism computes r2. and has no units.
Crouch (1970) studied the relationship between daily trading volume and daily absolute changes of market index and individual stocks and found positive correlation between them. Bhagat and Bhatia (1996) found strong one-directional causality running from price changes to trading volume while analyzing the lead-lag relationship between trading volume and volatility using Granger causality test. Hiemstra and Jones (1994) analyzed the bidirectional causality between trading volume and returns for New York Stock Exchange and found support for positive bidirectional causality between them.variation in X. So r2 is also the fraction of the variance in X that is "explained" by variation in Y. Smirlock and Starks (1988) analyzed the dynamic relationship between trading volume and returns using individual stock transactions data and found a positive lagged relation between volume and absolute price changes. r2 is the fraction of the variation that is shared between X and Y. However. In this example. The relationship between stock return volatility and trading volume has also been INDIABULLS SECURITIES LIMITED | 30 . Using nonlinear Granger causality test. 84% of the total variance in Y is "explained" by the linear regression model. 1977) used transactions data and found a positive contemporaneous correlation between trading volume and absolute returns. In an emerging market context. That leaves the rest of the variance (16% of the total) as variability of the data from the model (SStot) 3.2 LITERATURE REVIEW ON RELATIONSHIP AMONG RETURNS. Saatcioglu and Starks (1998) for Latin America stock market found a positive contemporaneous relationship between absolute returns and volatility. Moosa and Al-Loughani (1995) examined the dynamic relationship between price and volume for four Asian stock markets excluding India and found a strong evidence for bi-directional causality for Malaysia. Rogalski (1978) used monthly stock data and Epps (1975. Assogbavi (2007) used vector auto-regression model to analyze dynamic relationship between returns and trading volume using weekly data of individual equities of the Russian Stock Exchange. and Thailand. TRADING VOLUME AND VOLATILITY There have been number of empirical studies in developed markets that provide evidence on the relationship between trading volume and stock returns. In other words. Singapore. The value of r2 (unlike the regression line itself) would be the same if X and Y were swapped. Brailsford (1996) for the Australian stock market. They found a strong evidence of bi-directional relationship between volume and returns.
supports the positive relationship between volatility and trading volume.S. The relationship between volume and volatility has also been studied in the market microstructure strand of literature. Huang and Yang (2001) for the Taiwan Stock Market and Ahmed et al. Gallo and Pacini (2000). On the other hand Foster and Viswanathan (1990) model suggests that this relationship does not necessarily follow even when they use the same classification of traders as used by Admati and Pfleiderer. (2005) examined the Chinese stock market and investigated the dynamic causal relation between stock return volatility and trading volume. All of them found support for the mixed distribution hypothesis. the results are not consistent. The theoretical models of the past did not support the effect of trade size in the volatility volume relationship. On one hand. However. They found support for the MDH as the inclusion of trading volume in the GARCH specification of volatility reduced the persistence of the conditional variance. Another very important issue that has been has been addressed by researchers is the measurement of trading volume. However. In emerging markets context. the model of Admati and Pfleiderer (1988) which assumes three kinds of traders. some models (Grundy and INDIABULLS SECURITIES LIMITED | 31 . informed traders who trade on information. Wang et al.analyzed in several studies. namely. three kinds of measures. In the U. Kim and Kon (1994). and non discretionary traders who transact due to the reasons exogenous at a specific time and don¶t have the flexibility of choosing the trade time. (2005) for the Kuala Lumpur Stock Exchange found that the persistence in return volatility remains even after volume is included in the conditional variance equation. recent models consider the effect of trade size on the volume volatility relationship but contradictory results. most of empirical studies in the developed and developing market context have found evidence that the inclusion of trading volume in GARCH models for volatility results in reduction of the estimated persistence or even causes it to vanish. In general. However. Andersen (1996). and Lamoureux and Lastrapes (1990. 1994) found support for the MDH. volume of trade or total dollar value of trades have been used as a proxy of volume. Brailsford (1996) analyzed the effect of information arrivals on volatility persistence in the Australian stock market and Lange (1999) for the small Vancouver stock exchange. Pyun et al. number of trades. Harris (1987) used the number of transactions as a measure of volume and found a positive correlation between changes in volume and changes in squared returns for individual NYSE stocks. stock market. discretionary liquidity traders who can choose the time they want to trade but must satisfy their liquidity demands before the end of the trading day. For example. Generally. (2000) investigated 15 individual shares of the Korean stock market.
some additional results from other emerging financial markets are needed to better understand the price-volume relationship. 1990. volatility and trading volume relationship in Indian Stock market. Admati and Pfeiderer. Kim and Verrecchia. some other models (Kyle. 1989. Thus trade size may not necessarily convey adverse information. Very few studies have examined the price-volume relationship in Indian market. 1988) indicate that a monopolist informed trader may disguise his trading activity by splitting one large trade into several small trades. 1985.McNichols. 1991) show that informed traders prefer to trade large amounts at any given price and hence size is positively related to the quality of information and is therefore correlated with price volatility. On the other hand. Holthausen and Verrecchia. Given the mixed results between price and trading volume especially in emerging markets context. This paper represents one such attempt to investigate returns. INDIABULLS SECURITIES LIMITED | 32 .
CHAPTER IV DATA ANALYSIS AND INTERPRETATION INDIABULLS SECURITIES LIMITED | 33 .
INDIABULLS SECURITIES LIMITED | 34 .
POWER GRID CORPORATION OF INDIA LTD. HERO HONDA MOTORS LTD. WIPRO LTD.4 WHEELERS AUTOMOBILES . BHARAT HEAVY ELECTRICALS LTD. SUZLON ENERGY LTD. RELIANCE CAPITAL LTD. CIPLA LTD. HINDUSTAN UNILEVER LTD. PUNJAB NATIONAL BANK RANBAXY LABORATORIES LTD. ACC LTD. STATE BANK OF INDIA STEEL AUTHORITY OF INDIA LTD. AXIS BANK LTD. DLF LTD. TATA MOTORS LTD. MAHINDRA & MAHINDRA LTD.SOFTWARE AUTOMOBILES . STERLITE INDUSTRIES (INDIA) LTD. RELIANCE POWER LTD. LTD. TATA CONSULTANCY SERVICES LTD. CAIRN INDIA LTD. JAIPRAKASH ASSOCIATES LTD.4 WHEELERS POWER OIL EXPLORATION/PRODUCTION POWER BANKS PHARMACEUTICALS FINANCE TELECOMMUNICATION SERVICES REFINERIES POWER POWER ELECTRICAL EQUIPMENT BANKS STEEL AND STEEL PRODUCTS METALS PHARMACEUTICALS ELECTRICAL EQUIPMENT COMPUTERS . MARUTI SUZUKI INDIA LTD. KOTAK MAHINDRA BANK LTD. ICICI BANK LTD.1. HINDALCO INDUSTRIES LTD. RELIANCE COMMUNICATIONS LTD.4 WHEELERS POWER STEEL AND STEEL PRODUCTS CONSTRUCTION COMPUTERS ± SOFTWARE INDIABULLS SECURITIES LIMITED | 35 . JINDAL STEEL & POWER LTD. INFOSYS TECHNOLOGIES LTD. HCL TECHNOLOGIES LTD. TATA STEEL LTD. OIL & NATURAL GAS CORPORATION LTD. LTD.HOUSING CIGARETTES BANKS TELECOMMUNICATION SERVICES COMPUTERS . HOUSING DEVELOPMENT FINANCE CORPORATION LTD. RELIANCE INDUSTRIES LTD. HDFC BANK LTD. IDEA CELLULAR LTD.2 AND 3 WHEELERS ALUMINIUM DIVERSIFIED FINANCE . AMBUJA CEMENTS LTD. TATA POWER CO. I T C LTD. BHARTI AIRTEL LTD. NTPC LTD. UNITECH LTD. SIEMENS LTD. RELIANCE INFRASTRUCTURE LTD. LARSEN & TOUBRO LTD. INFRASTRUCTURE DEVELOPMENT FINANCE CO. SUN PHARMACEUTICAL INDUSTRIES LTD. GAIL (INDIA) LTD.1 Industry Type NSE Symbol ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M MARUTI NTPC ONGC POWERGRID PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER TATASTEEL UNITECH WIPRO Data Period Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 Jan 2000 to dec 2009 ELECTRICAL EQUIPMENT CEMENT AND CEMENT PRODUCTS CEMENT AND CEMENT PRODUCTS BANKS ELECTRICAL EQUIPMENT REFINERIES TELECOMMUNICATION SERVICES OIL EXPLORATION/PRODUCTION PHARMACEUTICALS CONSTRUCTION GAS COMPUTERS .LIST OF CONSTITUENTS OF S&P CNX NIFTY Company Name ABB LTD.SOFTWARE BANKS AUTOMOBILES . Table 4. BHARAT PETROLEUM CORPORATION LTD.SOFTWARE FINANCIAL INSTITUTION DIVERSIFIED STEEL AND STEEL PRODUCTS BANKS ENGINEERING AUTOMOBILES .
0141 .2a Statistics ABB N Valid Missing Mean Median Std.0741 -. Mean.268 .0000 BHEL 2528 1014 .61938 13.093 2.0740 -.1.91030 2.049 29.739 74.049 -.098 .047 16.001 .1437 3.049 -3.20355 -3.090 .76007 -30.0540 .096 3.294 .234 .0100 IDEA 692 2850 -.191 .001 .0000 CAIRN 732 2810 .098 3.309 .822 .782 764. Error of Kurtosis 2.045 ITC 2600 942 -.398 . Error of Kurtosis 2496 1046 .0921 .0114 BHARTIARTL 2135 1407 .0719 .0940 .178 . Skewness.599 .097 2519 1023 .0000 40.526 . Standard Deviation.098 2838 704 -.512 .93260 -1.33003 .049 -3.106 -.911 .841 .095 2607 935 .0628 3.488 .236 .049 8.091 .098 Table 4.0242 4.0660 2.1109 CIPLA 2513 1029 -.118 .0594 .461 .0983 .0186 .36129 3.094 Skewness Std.197 3.0211 1.002 .694 .0000 4.951 1.510 .180 .098 -.02916 -24.097 .098 2501 1041 .0563 .0292 23.44349 -.092 HDFC 2925 617 -.030 .07236 -39.1.092 .0463 .539 .0399 .41497 4.17562 3.049 931.31793 E2 .0585 . Table 4.098 HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR 2650 892 -.105 .0024 BANK 2691 851 .715 .0938 .792 .1.0430 .0305 4.048 61.762 .048 17.049 3.155 .78545 -3.046 6.048 3. Deviation Skewness Std.0915 .0449 .68000 -23.705 .049 1309. Error of Skewness Kurtosis Std. Deviation 2497 1045 .0506 BPCL 2497 1045 .36002 3.096 2501 1041 . Error of Skewness Kurtosis Std.404 86.824E3 .0222 DLF 615 2927 -.Table 4.0848 .1434 .2: SAMPLE SUMMARY STATISTICS OF RETURN These tables provide descriptive statistics for return of all constituents companies of NIFTY: Symbol.37951 4.47020 .076 .86066 -.053 76.455 -22.464 .978 .096 INDIABULLS SECURITIES LIMITED | 36 .049 953.0361 AMBUJACEM AXISBANK 2522 1020 -.2b Statistics ICICI GAIL N Valid Missing Mean Median Std. and Kurtosis over the period from January 2000 through December 2009.048 .186 5.0374 ACC 2614 928 .099 3.81387 -.0043 2.
073 .32478 -5.048 123.56802 -21.092 2.0554 -.885 .0823 3.814 .079 4.0695 3.057 .0689 .048 3.098 .762 .0751 .61949 2.758 .360 .738 .049 76.31875 2.921 .463 .061 1.068 3.71569 -.055 7.424 .0788 .096 RCOM 949 2593 -.289 .096 2579 963 .251 .0165 .75211 .961 .0682 .098 . Deviation Skewness Std.319 . Error of Kurtosis 548 2994 .049 18.0048 4.565 .074 3.012 .636 .0435 14.095 KOTAK BANK 2498 1044 .0000 4.1.2c Statistics JINDAL INFOSYSTCH N Valid Missing Mean Median Std.227 2497 1045 .148 JPASSOCIAT 1385 2157 .0191 .671 .1908 -.87476 3.184 .0593 ONGC 2521 1021 .0184 3.1351 MM 2507 1035 .122 .049 -8.183 .049 8.208 PNB 1995 1547 .047 137.39491 -13.Table 4.1598 .094 -.19167 -5.342 .110 RANBAXY CAPITAL 2609 933 -.0504 .159 RELIANCE 2697 845 .137 -.0236 3.0347 .978 .757 .0544 .1090 REL INFRA 2524 1018 .523 163.584 .266 .0918 4.1392 .0866 4.0251 .303 .0674 6.026 .38493 -4.046 6.337 .097 521.284 .104 4.047 383.078 .066 -3.29151 -14.066 373. Error of Kurtosis 2725 817 -.857 .2d Statistics REL POWERGRID N Valid Missing Mean Median Std. Error of Skewness Kurtosis Std.0736 -.122 -.202 .097 INDIABULLS SECURITIES LIMITED | 37 .308 .0706 .96578 3.947 .1014 1278 2264 .090 .13585 3.0711 MARUTI NTPC 1617 1925 .0393 .307 .094 IDFC 1084 2458 .0000 3.0658 .048 558.114 55.122 .87701 -.0890 .049 732.19159 -.32337 2.131 STEEL 2629 913 . Deviation Skewness Std.80632 .0000 LANDT 1374 2168 .2080 6. Error of Skewness Kurtosis Std.098 SBIN 2830 712 .55273 -.78854 -.0472 5.1.0027 -.32992 -19.132 Table 4.0000 RPOWER SIEMENS 459 3083 -.
Error of Kurtosis 2508 1034 .0000 2499 1043 .016 .097 .0638 TATA TATA TATA STEEL 3140 402 .098 -. Error of Skewness Kurtosis Std.095 Table 4.076 3.0365 .0499 .993 .07760 2. The negative skewness implies that there is higher probability of earning negative returns.048 -7.0000 MOTORS POWER 3542 0 .403 . This implies that the distribution of returns have fat tails compared to the normal distribution.097 .0000 STER 1394 2148 .1963 -.0444 .409 .0000 2639 903 -.270 .041 4. The daily number of shares traded (volume).049 -13.082 -.0526 .0905 4.85399 -.131 95. Deviation Skewness Std.24035 4.048 54.0096 TCS 1331 2211 -.588 187.57037 -1. These stock returns also show higher kurtosis (>3).066 53.68371 52.044 4.087 9.007 .93236 104.87564 -10.208 .863 .049 .006 .459 .152 1551.1. although the skewness statistics are not large.134 .0000 SUZLON 1038 2504 -. The daily total value of shares traded (value).2e The statistics from Table 2 show that most of the stock returns are negatively skewed during the period. INDIABULLS SECURITIES LIMITED | 38 .SUN SAIL N Valid Missing Mean Median Std.055 .701 .51368 5.067 200.0207 .299 .1159 .014 .946 .139 .0769 UNITECH WIPRO 2568 974 .049 6. Given the multiple possible measures of trading volume and the inconsistent results from previous research.26676 -35.103 456.0078 . But due to unavailability of Number of Trades data I am using only the other two measures of Daily traded volume for further Analysis.0243 .098 .336 -16.404 321.0721 PHARMA 2521 1021 -.85209 6.1157 . we have employed three different measures of trading volume: y y y The daily number of equity traded or daily number of transactions (trade).
030 2.936 9.1500E3 5. Table 4. 319.8948E5 7.4: SAMPLE SUMMARY STATISTICS OF VALUE.8 29310.3: YEAR WISE DESCRIPTION OF AVERAGE DAILY MEASUREMENTS OF TRADING VOLUME OF NIFTY STOCKS This table provides the yearly Average estimates of three measures of daily volume i.35 2154207 550.5 348. skewness and kurtosis of standardized value of value.093 10.442 11.450 3.4 COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL Mean SD Skew ness VOLUME 3.3 217.e.018 3.4 The average daily number of transactions of Nifty stocks was around 7025 with around 0.5453E5 2. standard deviation.1926E3 2.4470E6 1. The average value of share traded per day was around Rs.4587E3 8.1832E3 2828.value).3 YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 N 9113 9087 9512 10000 10260 10592 11120 11833 12436 13560 TRADE'S VOLUME VALUE IN (Rs.712 Kurtosis Mean SD Skewness VALUE 14.307 2.98 4.6 313.084 12.55852E6 1.6 660513.6 525 6239.Million) 5608.1.8224E3 2346.097 3.5 4026.1.84 million of traded shares.1 236.9 7332 1014290 333. Number of transactions.934 2. the daily number of shares traded (volume) and the daily number of equity trades (trade).30971E6 6.4 4352.705 2.355 13. Table 4.1 594220.438 13.8 763866.4565E3 4.2 7596.3 million.028 Kurtosis N 2497 2615 2523 2520 2529 1.3 6473.459 19.9 596276.0681E4 2.1.5 161.77118E5 INDIABULLS SECURITIES LIMITED | 39 .02417E5 1.5 956429. Table 4. Daily trading volume is measured in three ways: the daily total value of shares traded (value).725 1.1.66686E6 2.367 8. The mean. VOLUME This table provides basic Summary Statistics of daily trading volume.59091E3 1.883 2.35 1144107 430.9 286.589 14.But due to the unavailability of number of trades data I used only two measures of daily trading volume(volume .8 14310. Number of shares traded and Value of shares for the data period.1 902284.2 5238.27 8. volume and trade are presented.6 923933.3452E5 1.8430E6 7.Table 4.
59684E6 7.067 3.3609E3 8.588 6.899 59.154 3.7002E3 2.663 457.843 7.0862E3 24872.75 3941.36616E6 8.294 2.855 7.081 6.778 3.465 50.198 7.8964E6 6.52050E6 5.1543E3 6.8785E4 1.622 10.748 14.348 4.630 7.123 4.47 2251.650 1.07240E7 1.576 17.427 3.135 3.15034E6 8.852 5.436 105.9859E3 2.87 4.9654E3 8.948 2.1277E3 3.2 2.0948E3 2.95921E6 8.9816E3 16049.7596E4 4.71430E5 2.582 5.92 7.91 4468.5495E3 1290.149 66.971 7.3025E6 1.268 26.95231E6 1.127 6.39 1.881 49.053 6.8806E6 940582.954 452.1506E5 8.390 36.490 15.408 2.83586E5 7.5604E6 2.4886E5 8.86730E3 19961.376 3.01753E4 2.43 1.03190E6 4.623 4.463 2.27 1.112 3.7128E6 7.709 2.61908E4 5.870 36.1299E4 6676.127 13.143 5.505 6.068 14.971 27.03 8.70963E6 1.155 4.718 2.0294E3 1.602 3.6011E3 17895.566 13.90 1.484 1.962 3.973 2.4979E3 9.299 2.6682E4 3.9554E3 1.788 4.6204E5 4.7891E4 8.5353E4 4.914 18.83966E6 5.047 6.098 1.730 24.911 5.7 3.27901E7 1.138 174.48 1.043 73.369 8.287 109.46 44.12 2700.167 9.88456E5 2.9416E3 9384.084 55.357 5.0482E6 7.2554E5 1.60479E6 4.901 2.930 2.718 64.3694E4 6.940 6.993 143.1690E6 5.693 3.40 1.359 1.8727E5 368826.5648E3 12252.874 2.96 7.1075E4 5.6827E6 1.667 16.0776E6 2.466 21.257 6.3715E6 6.07153E6 8.937 25.682.67 3359.783 215.010 79.06645E4 2.373 25.8928E6 1.8804E3 3.099 26.92352E4 4.618 4.2520E3 6.186 6.16 3.182 10.1303E7 1.7570E5 5.231 5.90 2332.63266E5 3.687 15.858 2.922 2.410 7.069 1.0404E6 6.778 1.313 11.22970E6 1.3857E4 3.42 13098.66817E6 1.558 7.284 1.624 200.6599E3 1.986 1.75334E6 7.55798E5 6.929 7.22 4.27030E6 1.338 173.2996E4 24742.5443E3 14816.597 5.58486E6 7.712 1.929 4.057 342.22771E6 2.54701E4 1.984 4.60298E5 3.9063E3 2034.444 2.3229E3 11431.1546E3 5.99929E5 3.802 6.893 1.00778E3 1.8858E6 1.6374E6 679985.849 5.931 49.23288E7 6.27 8545.85813E6 4.3964E3 9.020 2.4628E6 4.83 3.0868E4 9.579 5.4885E6 130773.95114E6 1.8276E3 3.6669E6 2.5089E6 1.27160E4 7.25 4.177 5.204 12.967 27.218 104.58492E6 1.2395E6 1.038 7.578 1.17608E6 9.49109E5 9.2475E6 6.321 3.89296E5 1.0107E6 2.484 3.759 273.001 14.701 3.173 2.3148E7 1.9346E6 4.836 16.0354E6 1.21892E6 1.5075E4 8.814 55.494 18.162 5.BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTELs KOTAKBANK LT M&M MARUTI NTPC ONGC POWERGRID PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTOR S TATAPOWER TATASTEEL UNITECH WIPRO 2498 2136 733 2514 616 2498 2651 2502 2502 2839 2926 2608 2601 2692 693 2726 1085 1386 2630 2499 1375 2508 1618 1279 2522 549 1996 2610 2580 950 2698 2525 460 2498 2831 2509 1395 2522 1039 1332 3543 2500 3141 2569 2640 6.7689E3 2.899 2.390 52.618 24.426 3.13991E6 6.488 2.20 4136.164 3171.01 4786.92490E5 3.49902E6 2.7168E4 1.21 1.359 10.233 3.624 3.474 1.738 6.943 62.585 41.374 1.892 14.5122E4 3.393 12.0583E6 4.022 49.310 1.7598E3 1.508 3.3047E6 1.57 19.0085E4 1.924 2.586 7.623 2.927 23.88636E6 2.108 7.0866E6 7.902 1.34 6.66 4.4660E3 13544.0424E4 1.878 INDIABULLS SECURITIES LIMITED | 40 .67530E3 4177.4585E5 2.50575E6 4.55 3.155 2.736 89.89255E5 1.2781E3 2944.171 4.20122E6 2.5716E3 2.359 2.729 81.9611E5 2.42548E7 1.9658E5 2.087 2.2172E5 1.910 5.858 16.903 95.42092E6 3.66 2.337 17.691 78.56 9.1682E4 2.96 5.30620E5 3.03 6.836 2.424 335.3932E3 7.0865E6 7.7752E4 3.15366E3 7000.0 6.761 16.928 3.182 271.701 17.3505E3 8533.1 1.226 6.5600E4 9.1529E6 1.168 6.625 11.7857E6 4.9011E6 8.67 9.
2.8 0.35 0.58 0.87 0.7 0.82 0.2.95 0.97 0.99 0.72 0.95 0.1: PEARSON CORRELATION BETWEEN MEASURES OF DAILY TRADING VOLUME This table presents the Pearson Correlation between Measures of Daily Trading Volume namely Traded Quantity and Value of the shares traded for the whole period.87 0.94 0.86 0.72 0.73 0.41 0.1 TRADED VOLUME AND VALUE OF SHARES COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M MARUTI NTPC ONGC POWERGRID CORRELATION COEFFICIENT 0. Due to unavailability of number of trade¶s data i am taking these two as measures for Daily Trading Volume.86 0.96 0.75 0.84 0.92 0. Table 4.92 0.83 0.76 0.75 0.76 INDIABULLS SECURITIES LIMITED | 41 .96 0.ANALYSIS 2 Table 4.93 0.76 0.93 0.
63 0.77 0.97 0.84 0. But for the companies like TATASTEEL.68 0. IDFC the coefficient is less than 0.71 0.2.56 0. INDIABULLS SECURITIES LIMITED | 42 .97 0. BHEL. The measures of trading volume have been standardized for further analysis.75 Table 4. The two measures of volume are closely related. the value of trades.68 0.73 0.96 0.54 0. For most of the companies we found high correlation between all the two measures of volume: the number of shares traded.PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER TATASTEEL UNITECH WIPRO 0.89 0.97 0. STER. (more than 0.1 presents the Pearson correlation between the two measures of daily trading volume.8).85 0.8 .72 0.82 0.77 0.
057* 0.132 0.047 -0.069* -0.03 0.006** 0.073* 0. Three measures of trading volume.673* -0.034 -0.015 0.05 0.020** 0.402* 0.006 0.375 0.01 0.02 0.0963 0.461 -0.08 0.413** -0.189* 0.0543** -0.415* 0.634* 0.Table 4.310** -0.387 -0.097* -0.104* -0.032** -0.167* 0.173** -0.297 0.083 -0.020 -0.085* 0. the daily number of shares traded (volume) and the daily number of equity trades (trade) are considered.001 0.007 -.186* -0.055* 0.281* 0.121* 0.04* 0.032 0.179* 0.2.234* -0.064 0.075** -0.2 COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M 0.036** VOLUME Adj -0.021** 0.095* 0.023 0.028 0.001 0.026 -0.253** 0.136* -0.040* -0.032 -0.111* 0.047* -0.454 0. Rt is Return at time t.049** 0.016 0.027 0.2.043** -0.051* 0.771 -0. Rt = + Vt ---------. Where Vt is the standardized trading Volume at time t.055* 0.001 0.030 -0.001 0.001 0.114 0.67** 0.001 0.25 0.033* -0.232* -0. Table 4.03 0.017 0.271* 0.085* -0.041** 0.009 -0.03 0.027 -0.02 0.036** -0.099* 0.119** 0.767* -0. the daily total value of shares traded (value).001 0.031 0.001 0.010 0.038 0.236* -0.117 -0.023 -0. Parameter estimates of all 50 companies are presented.07 0.053 0.151 0.089* -0.2: RELATIONSHIP BETWEEN STANDARDIZED TRADING VOLUME (NUMBER OF SHARES) AND RETURNS This table provides the coefficient estimates from regressions of trading volume against absolute price changes (absolute returns) and asymmetric coefficient of the Regression equation.041 INDIABULLS SECURITIES LIMITED | 43 .010** 0.136* 0.028 0.
2.001 0.830* -0.226* 14.004 0.211* 0.211* 0.083* 0.001 0.143* -0.02 0.177* 0.038 0.036 0.039** -0.382* 3.211* 0.095 0.181* 0.044 0.791* 0.845* 2.020 0.140* 0.043* 0.3: RELATIONSHIP BETWEEN STANDARDIZED TRADING VOLUME (VALUE OF SHARES) AND RETURNS.53** -10.036 0.922* -5.932** -3.367* 3.045 0.925* 3.033 0.033 -0. Table 4.265* 0.058* 0.758* 2.150* 0.181* 0.985* -0.039 0.03 0.031 0.024 0.253** 3.822* -12.131* 0.513* 2.197* 0.128* -0.243* 0.093* 0.160 -0.210* 0.001 0.203* -3.028 0.294* -0.140 0.077* 9.044* -0.872* -0.008 0.025 0.867* 3.03 0.836* -5.035** 0.678* -4.090** 0.018 0.185* 0.083** 10.07 0.905* 0.001 0.414** -5.009 0.051* -0.315* 0.193** 0.038** 0.030 0.197* 0.126 -0.019 0.088** RSQR 0.223** 2.078* 0.102** -0.172* 3.014 -0.099 Table 4.02 0.021 0.877* -4.096* -4.013** 0.002 0.001 0.719* -3.128* -11.025 -0.214* -4.201* 0.183* 10.088 0.194** 0.463** 0.3 COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK -3.02 INDIABULLS SECURITIES LIMITED | 44 .014* 0.175* 0.826* 3.037 0.578* -0.052** -0.159* 0.876* -2.142* -0.07 0.038 0.2.08 0.053 -0.001 0.034 0.125 -0.06 0.298* -3.205* 0.50* 0.070* -0.040 0.044* 0.043 0.966* -5.87 0.834* 3.MARUTI NTPC ONGC POWERGRID PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER TATASTEEL UNITECH WIPRO 0.045 0.087* 0.749* 3.031 0.279** VALUE FO SHARES TRADED Adj 2.160* -16.108* 0.013 0.
232* 0.237 8.2.001 0.279* 0.155** 0.08 0.548* 5.431 6.333* 4.001 0.083* -11.161* 0.098* 2.043 0.191 0.478** 12.001 0.171** 0.147* 0.259* 0.312** -5.062 0.098** -14.061 0.267 0.252 0.307* 6.523* 5.749* -11.978 5.485 6.638 6.333** 11.067 0.371* -9.993* -6. The coefficients are higher for most of the companies.223* 0.057* -7.156** 0.230* 5.117* 4.001 0.224** 0.438 -8.054 0.523* -7.037 0. when the Value of Stocks traded is taken as a measure of trading volume.247* 0.078 0.307 -10.533* -6.688* 5.834 -10.001 0.471* -7.085 0.251 0.274* 0.109 7.824** -7.055 0.254* 6.117* -8.246* 0.037 0.3.001 0. are significant and positive at 1% and 5% level across all two measures of trading volume.848* 9.740 -9.024 0.236* 0.347 -5.234* 0.777* -0.739* -3.193* 0.001 0.001 0.041 0.902* -6. The estimates of .568* -6.099 -15.HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M MARUTI NTPC ONGC POWERGRID PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER TATASTEEL UNITECH WIPRO -4.071 0. The asymmetric behaviour of INDIABULLS SECURITIES LIMITED | 45 .364* -0.226* 0.158** 0.056 0.683** 7.731 3.283* 0.060 0.806* 4.642* -5.153 14.024 0.292* 0.7118* -3.183 0.025 0.721* 4.534* 3.259* 0.050 0.001 0.617** 4.159* 0.789* -8.442 -8.026 0.867* 8.327* 5.080 0.025 0.755* 0.297 0.001 0.075 The results of the regression using equation  to explain the relation between volume and price changes and its asymmetric nature are presented in Table 4.147* 3.075 0.201* 0.900 -0.668* 6.029 0.023 0.219 0.022 0.268** 5.030 6.062* 0.151* 0.763** -13.146* -3.628** -8.230* 0.062 0. which measure the relationship between price changes and volume irrespective of the direction of the price change.330 5.924* -0.959* 0.049 0.349* 4.275* 2.283* 0.201* -5.035* -14.191* 0.924* 12.051 0.590 -9.585 -4.
These companies are HDFC. PNB. some of the companies do not show asymmetric behaviour when considered Number of shares as Daily trading volume measure. HDFC. out of 50 stocks 10 companies did not show asymmetric behaviour. RELCAPITAL. RELIANCE. SUZLON. INFOSYS. These companies are CIPLA. INDIABULLS SECURITIES LIMITED | 46 . RELIANCE. RELINFRA. When we observe the result from the regression. Out of 50 stocks. most of the companies showed the asymmetric relationship between the Trading Volume and stock Return. In India. RANBAXY. SBIN. HDFC BANK. After 2006. So we can say that value of shares can be used as proxy for predicting the stock return. But when the value of the shares are taken as the measure for trading volume only 10 companies has shown non asymmetric relation between Trading Volume and Return. L&T. HINDALCO. the Foreign Institutional Investors (FIIs) and the mutual funds registered with SEBI. The parameter Adj level. and TATA POWER. Hence. However. they were allowed short selling.relation between volume and returns is indicated by coefficient Adj . KOTAKBANK. This small non-asymmetric behaviour supports the finding of Assogbavi (2007) that clearly indicates the absence of asymmetric relationship in emerging markets. LT. SBIN. This means that the cost of taking a long position might not be different from that of taking a short position in these stocks. Because of this relation we can say that there is a continuous information flow in to the market. When considered the number of shares as the measure for trading volume 15 companies are shown the nonasymmetric relation between return and trading volume. the proportion of retail investors and institutional investors might be the reason behind mixed results of the asymmetric relationship between price changes and trading volume for some Indian stocks.JP ASSOCIAT. banks and insurance companies. such companies are 15 who did not show asymmetric behaviour. TCS. KOTAKBANK. the short selling has been banned time to time. INFOSYS. short selling was prohibited for ³Institutional investors´ viz. STER. till 2006. MARUTHI. is not significant at even 5% When considered value of shares traded as daily trading volume measure. However.
303* -12.983 -24.095* 0.214** 21.982* 5.2.0312 0.311* -2020. Rt^2 is unconditional volatility at time t.06 0.052* -0.4* -87.4 COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M MARUTI NTPC -23.2.082* 0.075** 0.4: Relationship between Standardized Trading Volume (Volume of shares) and Unconditional Volatility This table provides the coefficient estimates from regressions of trading volume against unconditional volatility and asymmetric coefficient of the Regression equation.971** 1640.048 0.Table 4.809* 5.824* 4.009 0.031 0.023 0.022** 6.283* 5.911 8.03 0.07 0.001 0.001 0.275 -267.06 0.602 -8. the daily number of shares traded (volume) and the daily number of equity trades (trade) are considered.153* 0.042 0.010 INDIABULLS SECURITIES LIMITED | 47 .043* 20. = + Vt ---------.023 0.051* 0.219** 28.031 0.778** -9.001 -0.001 0.859 -7.219* 0.03 0. Table 4.449* 5.293* 670.099* RSQR 0.537 15.07 0. Three measures of trading volume.815* 8.153* 0.556 18.086** 0.006 0.770 3.001 0.04 0.012 0.023 0.142* 10.751* -12.539* VOLUME Adj 39.605* 171.055* 0.57 1310.127 5.184 2.031 -0.795 -22.933* 21188.013 0.001 0.177* 0.013 0.111* -0.12* 462.001 0.893* 21.278* 1.900* 27.3* 108.045* 0.544 186. Where Vt is the standardized trading Volume at time t.045 -12.078* 0.125 3.696* 0. Parameter estimates of all 50 companies are presented.001 0.001 0.845* 7.060* 0.016 0.909 6.078** 0.565* 9.076 191.824* 89.059 0.066* 0.99* 7.708* 13.24* 314.695** -2.06 0.078 0.233* 5.237* 5.126* 0.097* 0. the daily total value of shares traded (value).948* 16.001 0.019 -0.731* 9.088 -0.760 194.082 4.098* 2.
001 0.948* 24.074* 0.253* 5.153* -0.618 12.039 Table 4.062* 0.011 0.039 0.013* 6.620* 3.605* 2.011 0.481 -854.095* 0.657** 19.619* 220.331 -3281.834* 47.023 -0.416** -3.241* 5.05 0.455* 5.557* 0.064* -0.773* 4.132 4.232 3565.048 9.428* 4.030 -0.5: Relationship between Standardized Trading Volume (Value of shares) and Unconditional Volatility Table 4.580* 3.764* 4.012 0.1* 3306.025 0.930* 2.508 3933.035 0.053* 0.058* RSQR 0.030 -0.118* 0.508* 263.137* 16.001 0.925 -1.051 0.059* 0.9* -293.691* 8.326* 3.118* 0.135 17.032 0.026 0.135* 7.036 0.267 13450.447* 6.001 0.023 0.2.095* 0.561* 8.01* 776.866 -1360.771 6.014 0.537* 14.148* 0.629* -15.8* 19.001 0.946 19.001 0.221* 3.03 0.1* 1056 473.686* 0.518* -0.03 INDIABULLS SECURITIES LIMITED | 48 .022 -0.071* 0.001 0.042 0.001 0.154 3.526* 4.744* 9.486 4.233* -2.95* 95.022 0.010 0.091* 0.570* VOLUME Adj 36.498* 764.119 1.117* 0.014 0.023 0.003 0.150* 0.331* 7.12* 1869.98* 13450.021 0.620* 7.885* 6.02 0.067* 0.081 0.908* 1104.623* 1.502* 15.050* 0.190* 0.0194* 0.00 0.052 0.001 0.150* 0.095 0.42* -3281.5 COMPANY NAME ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO -21.749 -164.778* 504.109* 0.092** 0.ONGC POWERGRID PNB RANBAXY RCOM RELCAPITAL RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER UNITECH TATA STEEL WIPRO -10.014 0.049* -0.001 0.023 0.502 12.235* 3.026 0.057* 0.771* 2.2.02 0.9* 788.04 0.957 3.
053* 0.265* 18.972 -12.01 0.4 and 4.954* 14.392* 37.965 173.390 -38.726* 8.022 -0.049* 0.366* 4.884* -8. are significant and positive at 1% level in most of the stocks and are consistent for all the two INDIABULLS SECURITIES LIMITED | 49 .474* 9.01 0.173 -1010.072* -0.053* 0. The results are presented in Tables 4.727* 158.060* 0.824 5.093* 0.51* -323.307** 3.001 0.586* 0.531 1.02 0. is estimated through Regression equation . The estimates of Adj .07 0.950* 36.751* -8.087* -0.01 0.231* -0.001 0. stronger relationship between trading volume and volatility when price ticks up than downtick.038* 0.412 23099.042 *(**) represents significance of the parameter at 1 %( 5%) significance level. which measures the asymmetric relation between volume and unconditional volatility irrespective of the direction of price change.02 0.001 0.e.37* 1152.05 0.063* 0.002 -0.2.001 0.001 0.160* -0.043 0.04 0.277* -7.691 11.135 -3497.07 0.04 0.001 0.907** 16.577 3722.207* 0.01 0.017 0.356 184.049** 0.159* 0.01 0.554** 3.693* -1.133* 2.079* 0.02 0.248 3746.2.026 0.867* -3127.304* 7.453* 34.437* 20.025 0.001 0.042* 0.437* -1.9* -72.5.081* 6.053 0.233* 226.085* 0.HINDUNILVR HDFC ITC ICICIBANK IDEA INFOSYSTCH IDFC JPASSOCIAT JINDALSTEL KOTAKBANK LT M&M MARUTI NTPC ONGC POWERGRID PNB RANBAXY RELCAPITAL RCOM RELIANCE RELINFRA RPOWER SIEMENS SBIN SAIL STER SUNPHARMA SUZLON TCS TATAMOTORS TATAPOWER TATASTEEL UNITECH WIPRO 561.526* 5.107* -139.064* -0.058* 17.07* 92.443* 16.001 0.692* -0.429* -96.523* 470.212* -5.015 22.390* 4.78* 3538.02 0.226* 0.005* 0.767* 3.812* 7.626* 5.916* 3.036* -0.006 -0.002 0.062** 6.039* 0.576* 14.029 0.094 -17.971* -0.769* -32.049* 0.101 2889. The relationship between unconditional volatility and trading volume and its asymmetric behaviour i.06 0.808* -0.573 -1040.031* -0.255* 4.828* 7.03 0.047** 0.067* 4.03 0.019 -0.001 0.002 -0.046* 0.256 5.487* 13224.04 0.09 0.015 -0.02 0.447 17.051 0.21* -9.
This can be interpreted that the value of the shares may be more accurate proxy of information than the other measure. When volumes are decreasing. The asymmetric relationship between unconditional volatility and trading volume is also prominent in most of the cases from F test (37 stocks when value. the coefficients are positive. INDIABULLS SECURITIES LIMITED | 50 . the relation between trading volume and volatility is lower as compared to when the volumes are increasing. In all the cases. 35 when volume is taken as measure of trading volume).measures of volume. the asymmetric behaviour is more prominent when the value of shares is taken as the proxy of daily trading volume. Similar to the findings in case of returns and trading volume relationship.
CHAPTER V CONCLUSION INDIABULLS SECURITIES LIMITED | 51 .
So we can take either of this as measure of daily trading volume. y From the Pearson¶s correlation we observe that the coefficient is greater than 0. y So from the above two observations we can conclude that value of the shares traded can be used as a better proxy for predicting the stock returns. y From the regression analysis between stock return and volume of the shares traded we found that 70% of the stocks showing the asymmetric relation between stock return and volume of the shares.8 for most of the companies so from this we can say that there is definite correlation exists between number of shares traded and value of the shares traded. INDIABULLS SECURITIES LIMITED | 53 . This shows efficient market condition. y The stock returns also show higher kurtosis (>3). y From the regression analysis between volume of the shares traded and unconditional price volatility we found that 70% of the stocks showing the asymmetric relation between volume of the shares and price volatility. y From the regression analysis between stock return and value of the shares traded we found that 80% of the stocks showing the asymmetric relation between stock return and value of the shares. although the skewness statistics are not large. This implies that the distribution of returns have fat tails compared to the normal distribution.1 RESULTS AND DISCUSSIONS y From the descriptive statistics of return we can observe that most of the stock returns are negatively skewed during the period. The negative skewness implies that there is higher probability of earning negative returns. From this it is evident that the rate of information flow into the stock market is good and the information is effectively converted into stock prices.5. y From the above analysis we can say that there is a definite asymmetric relation between daily trading volume and rate of return. From the regression analysis between value of the shares traded and unconditional price volatility we found that 74% of the stocks showing the asymmetric relation between value of the shares and price volatility. y So from the above two observations we can conclude that value of the shares traded can be used as a better proxy for predicting the unconditional price volatility.
researchers and policy makers.3 LIMITATIONS y Present study of research is limited to Indian stock market and especially Nifty fifty. The evidence for positive asymmetric relation between returns and volume as well as unconditional volatility INDIABULLS SECURITIES LIMITED | 54 . very few empirical studies has been reported on aforementioned issues. y Comparative analysis of developed markets can be done in this field of research.Asymmetric relation between level of trading volume and returns is examined using linear regression. volatility and trading volume in financial markets is equally important for traders. In emerging markets generally and in Indian stock market context specifically.2 DIRECTIONS FOR FURTHER RESEARCH y From the above done analysis we can conclude that there exists a strong relationship between volume. Two measures of trading volume namely number of shares traded and value of shares traded are used. y Because of unavailability of number of trades of daily data I could only consider two measures of trading volume that are value of the shares and volume of the shares traded 5. return and volatility.4CONCLUSIONS Understanding the relationship between returns. we analyze the returns and volume relationship. In case of volatility.to long-term investment horizon. 5. focusing on the asymmetric relation between absolute returns and trading volume and asymmetric relation between unconditional volatility and daily trading volume. So further research can be developed by forecasting the volatility and return through which the risk can be minimised. The distribution of returns has implications for various financial models and risk management practices. The correlations between the two measures of daily trading volume are examined using Pearson¶s correlation . with a very short-term investment horizon and many portfolio managers that have a medium. implications of trading volume in forecasting volatility helps agents like traders.5. This paper reports an empirical study for Indian Stock market. The dynamic relationship between returns and trading volume helps to understand the market clearing process and frictions in the market. the asymmetric relation is examined between unconditional volatility and volume using linear regression. Using 50 Indian stocks from NSE NIFTY index. Also.
INDIABULLS SECURITIES LIMITED | 55 . y From the analysis it is evident that there is a strong relationship between volume and volatility based on this the portfolio managers can take the decisions on taking long or short positions on a stock. We also find that the level of Return is dependent on the direction of daily volume change in case of 80% of the stocks in the sample when we take value of shares as measure for daily volume so it is better to use share value as proxy for predicting the stock return. 5. y From the results of the analysis we can say that the relation is much useful for the technical analysis because technical analyst gives less significance to a price increase with low trading volume than to a similar price increase with substantial increase in volume.5 SUGGESTIONS y From the analysis it is evident that there is a strong relationship between volume and return so the retail investors and institutional investors can take value of the shares as proxy for prediction of return but little percentage of companies showing non asymmetric relationship so investors should be careful of short selling.and volume is found.
BIBILIOGRAPHY INDIABULLS SECURITIES LIMITED | 56 .
com/hyperstat/A34739.ejbe.htm INDIABULLS SECURITIES LIMITED | 57 .graphpad.com/securities/home/aboutindiabulls.BIBLIOGRAPHY y http://www.com/hyperstat/A62891.com/ y http://www.org/EJBE2009Vol02No04p113MAHAJAN-SINGH.nseindia.eurojournals.pdf y http://www.htm y http://davidmlane.com/ejefas_12_05.html y http://www.pdf y http://www.html y http://davidmlane.indiabulls.com/curvefit/linear_regression.
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