We investigate the relationship between volatility, measured by realized volatility, and trading volume for 25 NYSE stocks. We show that volume and volatility are long memory but not fractionally cointegrated in most cases. We also find right tail dependence in the volatility and volume innovations. Tail dependence is informative on the behavior of the volatility and volume when large surprising news impact the market. We estimate a fractionally integrated VAR with shock distributions modeled with a mixture of copula functions. The model is able to capture the main characteristics of the series, say long memory, marginal non-normality and tail dependence. A simulation and forecasting exercise highlight the importance of modeling both long memory and tail dependence to capture extreme events.

Long memory and tail dependence in trading volume and volatility / Rossi, Eduardo; Santucci de Magistris, Paolo. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - 22:(2013), pp. 94-112. [10.1016/j.jempfin.2013.03.004]

Long memory and tail dependence in trading volume and volatility

Santucci de Magistris, Paolo
2013

Abstract

We investigate the relationship between volatility, measured by realized volatility, and trading volume for 25 NYSE stocks. We show that volume and volatility are long memory but not fractionally cointegrated in most cases. We also find right tail dependence in the volatility and volume innovations. Tail dependence is informative on the behavior of the volatility and volume when large surprising news impact the market. We estimate a fractionally integrated VAR with shock distributions modeled with a mixture of copula functions. The model is able to capture the main characteristics of the series, say long memory, marginal non-normality and tail dependence. A simulation and forecasting exercise highlight the importance of modeling both long memory and tail dependence to capture extreme events.
Realized volatilityTrading volumeFIVARTail dependenceCopula modeling
Long memory and tail dependence in trading volume and volatility / Rossi, Eduardo; Santucci de Magistris, Paolo. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - 22:(2013), pp. 94-112. [10.1016/j.jempfin.2013.03.004]
File in questo prodotto:
File Dimensione Formato  
Rossi_Santucci_2013.pdf

Solo gestori archivio

Tipologia: Documento in Post-print
Licenza: Tutti i diritti riservati
Dimensione 1.45 MB
Formato Adobe PDF
1.45 MB Adobe PDF   Visualizza/Apri
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/178215
Citazioni
  • Scopus 31
  • ???jsp.display-item.citation.isi??? 32
social impact