Abstract
Recent studies contend that trading volume has predictive power for ex ante stock prices, particularly small stocks that do not react quickly to macroeconomic information. This study postulates that a significant amount of macro-information that flows on to stock markets is derived from derivative markets. We examine the impact of short-term futures trading volume and prices on cash stock prices using a case study of 15-min data from the Australian stock index futures market which reports actual trading volume. After applying vector error correction modelling (VECM), variance decomposition and impulse functions, we conclude that futures prices provide a short-term information lead to stock prices that dominates trading volume effects. We also observe asymmetric changes in the impact of trading volume between bull and bear price momentum phases and after large trading volume shocks. These results suggest that, in future, studies on trading volume should control for the cross-correlation impact from derivative prices and the differential impact of trading phases.
| Original language | English |
|---|---|
| Pages (from-to) | 68-85 |
| Number of pages | 18 |
| Journal | International Review of Financial Analysis |
| Volume | 15 |
| Issue number | 1 |
| DOIs | |
| State | Published - 2006 |
Keywords
- Futures trading volume
- Multivariate causality
- Price momentum phases
- Stock and futures prices
ASJC Scopus subject areas
- Finance
- Economics and Econometrics