Open Access Open Access  Restricted Access Subscription or Fee Access

Dynamic Relationship between Stock Market Returns and Trading Volume: Evidence from Indian Stock Market



This paper empirically examines the relationship between the stock returns & the trading volume for Sensex. Three main measures of volume traded namely number of shares traded; total turnover of the shares traded & the no. of transactions are used. Their daily data for a five year period were taken for the study. The contemporaneous correlation between the volume & returns was studied after it was found that there was no unit root in the data. A positive contemporaneous relation between the volume & the returns was found. The results from Granger causality test suggest us that the returns granger causes volume for Sensex. VAR test also suggests that the stock returns are dependent on the returns of the previous days. It can be explained as in an emerging market like India, the market development cause the sequential information dissemination. It can also be concluded that in Sensex, no. of transactions can prove to be a better proxy of information than number of shares traded or turnover.


Sensex, stocks traded, total trades, stock turnover, granger causality, Vector autoregression

Full Text:

Full Text


 Alex, W.H.C. 2010. Return Volume Relation in the Tail: Evidence from six Emerging Markets. Banking & Finance Letters, Vol. 2(2), 291-308

 Blume, L., Easley, D. and O’Hara, M. 1994. Market Statistics & Technical Analysis: The Role of Volume. Journal of Finance, Vol. 49, 153–181

 Clark, P.K. 1973. A Subordinated Stochastic Process Model for Speculative Prices with Finite Variance. Econometrica, Vol. 41, 913-935

 Copeland, T.E. 1976. The model of Assets Trading under an Assumption of Sequential Information Arrival. Journal of Finance, Vol. 31, 1149- 1186

 Epps, T.W. and Epps, M.L. 1976. The Stochastic Dependence of the Security Price Change & Transaction Volumes: Implications for the Mixture of Distribution Hypothesis. Econometrica, Vol. 44, 305-321

 Foster, A. 1995. Volume Volatility Relationships for Crude Oil Futures Markets. Journal of Futures Markets, Vol. 15, 929-951

 Jennings, R.H., Starks, L.T. and Fellingham, J.C. 1981. An Equilibrium Model of Asset of Trading with Sequential Information Arrival. Journal of Finance, Vol. 36, 143-161

 Karpoff, J.M. 1987. The Relation between Price changes & Trading Volume: A Survey. Journal of Financial & Quantitative Analysis, Vol. 22, 109-126

 Kumar, B. and Singh, P. 2009. The Dynamic relationship between stock returns, trading volume & volatility: Evidence from Indian stock market. IIM Ahmedabad Working Paper No. 2009–12–04

 Lamaoureux, C.G. and Lastrapes, W.D. 1990. Heteroscedasticity in Stock Returns Data: Volume vs. GARCH Effects. Journal of Finance, Vol. 45, 221-229


  • There are currently no refbacks.

Print Version ISSN 0975-3931

Online Version ISSN 2278-1277