Assessing the relationship between dependence and volume in stock markets: A dynamic analysis

Abstract

We present a novel approach in the research field of price–trading in stock markets. We consider the effect of trading volume (related with liquidity) on the dynamic dependence of time series, using data from the Portuguese stock market, with both listed and non-listed firms in the main index. We use detrended fluctuation analysis, with a sliding windows approach, to estimate the dynamic dependence of shares. We found two interesting and related features: firms listed in the main index have results more centred at the 0.5 level; exponents’ volatility is less in the second half of the sample, after the most severe period of the Eurodebt crisis. Then, we relate this dependence with trading volume, with detrended cross-correlation analysis and the respective correlation coefficient. We found that for firms listed in the main index, some show evidence of negative correlations while for non-listed firms, most of the shares have the same results. We conclude that the lack of liquidity could be related to increased dependence. An interesting feature found is that some firms have a positive correlationship between the variables, but all those firms work with natural resources in their activities, which could mean that other factors influence their dependence patterns.