Abstract
Purpose: Causality between stock returns, volatility and traded volume for 10 most liquid stocks from Zagreb Stock Exchange (ZSE) is examined in this paper. Methodology: The paper relies on historical daily data regarding return, standard deviation and turnover for the period from 2015 to 2021. Vector Autoregressive Models (VARs) were estimated for each stock in-dividually. Based on estimated VAR models, Granger-causality tests were performed to estimate causality between trading volume, stock returns and volatility for most liquid stocks from the Croatian stock market. Results: Results strongly confirm that traded volume Granger causes volatility. Return remained irrelevant in terms of predicting traded volume and volatility of stock returns. Conclusion: Causality from return to volatility or causality from volatility to return can be confirmed only in shorter periods. Traded volume causes volatility for the majority of stocks regardless of how volatility was calculated. Causality from volatility to return and causality from volatility to volume are valid for half of the sample and need to be further investigated.
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