Abstract
The price–volume relationship of stocks can be impacted substantially by structural changes and market volatility. In this paper, we analyze China’s stock market behavior and subsequent price–volume equation, with emphasis on two periods of market volatility and structural changes during 2007–2008 and 2015–2016. To account for the impacts of unknown volatility and time breaks, we embed the price–volume relationship into a vector autoregression (VAR) framework with structural breaks and volatility thresholds. Our results indicate that significant time-breaking effects exist and that the high-low volatility effects are substantial. Finally, in its entirety, we identify only a linear causal relationship from price to volume.
Highlights
Research on the relationship between stock price and trading volume is one of the most important components of technical analysis of the stock market
It can be inferred that the price of the China stock market significantly affects trading volume during 2003–2019, while the reverse impact of volume on price was much weaker
The empirical price–volume relationship is examined in a vector autoregression (VAR) framework
Summary
Research on the relationship between stock price and trading volume is one of the most important components of technical analysis of the stock market. The conventional VAR approach to the dynamics of price–volume relations fails to account for the impacts of structural change and market volatility, which are regular features of China’s stock markets. To this end, this study contributes to the literature by assessing the price–volume relationship of China’s stock market using a VAR framework with structural break and volatility thresholds
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