The Relationship between Trading Volume and Asymmetric Volatility in Asian Emerging Stock Markets

Trading volume is an important explanatory indicator for a high degree of volatility persistence. Trading volume plays an important role in the flow rate of market information. Yet, despite the well-known importance of this volatility-volume relationship, there is a paucity of research on this topic for Asian emerging stock markets. We examined asymmetric volatility and trading volume in six Asian Stock markets: Hong Kong, Korea, India, Indonesia, Malaysia and Taiwan. The analysis utilized an EGARCH model to estimate the degree of asymmetric volatility following the stock market crashes in 2008. Asymmetric volatility recently observed in market downturns from 2008 to 2010 provided an opportunity to test the hypothesis that daily trading volume subsumes EGARCH effects. We found that the inclusion of a trading volume variable slightly reduces the asymmetric volatility, and that volatility during a crisis provides only negligible additional information. This study’s findings provide evidence on the relationship between asymmetric volatility and trading volume, and help predict accurate volatility dynamics in Asian stock markets.