The impact of economic shocks on stock return and trading volume relationship

• Main Author: Lee, Jih Shin
• Format: Thesis
• Language: English; English; English
• Published: 2018
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/7380/1/Depositpermission_s823067.pdf; https://etd.uum.edu.my/7380/2/s823067_01.pdf; https://etd.uum.edu.my/7380/3/s823067_02.pdf; https://etd.uum.edu.my/7380/

This study analyzed the relationship between trading volume and stock return in the Main Market of Bursa Malaysia from April 2009 to October 2018, and ACE market from April 2000 to October 2018. The relationship was then re-examined surrounding four exogenous shocks in macro events. The first two shocks, standardization of lot size, and the global financial crisis were only applicable to the Main Market only while two other shocks, the oil price shock, and the 14th Malaysian general election were applicable to both market. Granger-causality test showed a significant bidirectional relationship between trading volume and stock return. Results of the ordinary least squares (OLS) further revealed that there was a positive and significant relationship between trading volume and stock return. This positive relationship is consistent with the sequential arrival of information model and the mixture of distribution hypothesis model (MDH). The positive relationship generally was held for the period before and after the economic shocks related to the standardization of lot size, the global financial crisis, and the oil price shock. The stock return-volume relationship was, however, significantly weaker during the global financial period and became insignificant during the 14th Malaysia general election in the Main Market. The findings of a weaker stock return-trading volume relationship are consistent with the MDH. Overall, the significant positive stock return-volume relationship for the overall and subsamples of economic shock events implied that when the investors observed an increase in the trading volume, they start to invest in the stock as the stock returns also increased due to the positive stock return-volume relationship. The stock return-volume relationship can help in the investor’s investment decisions.