Dynamics of the price-volume relationship in an African context: the case of South Africa

Abstract

This paper investigates the contemporaneous and causal relationships between stock prices and trading volume in South Africa using weekly data on 36 Johannesburg Stock Exchange (JSE) listed companies over the 2011 to 2017 period. The findings are consistent with earlier studies that document the presence of both contemporaneous and bi-directional causal relationships between stock returns and trading volume. However, contrary to most findings, our results indicate a strong negative asymmetric relationship instead of a positive one. The bi-directional relationships tests results are strong and are in support of a quasi-instantaneous information dissemination environment, which lends some support to market efficiency in the JSE. Thus, our results suggest that the JSE is well structured for information to be fully diffused quickly, thus creating a conducive environment for the implementation of a variety of investment strategies such as momentum and contrarian, and potentially making the JSE a good candidate for international investors.