Abstract
This study investigates the dynamic relationship between stock return volatility and trading volume for individual stocks listed on the Chinese stock market as well as market portfolios of these stocks. We found that the inclusion of trading volume, which is used as a proxy of information arrival, in the GARCH specification reduces the persistence of the conditional variance dramatically, and the volume effect is positive and statistically significant in all the cases for individual stocks. Consistent with our analysis of the institutional and ownership structure of listed Chinese companies, trading volume is found to play a role of proxies of information arrivals for the two B share portfolios, but not for the two A share portfolios. Our conclusion is that the information-based effect helps in explaining the GARCH effect to a large extent. Nevertheless, GARCH does not completely vanish as a result of this inclusion.
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