Causality between Returns and Traded Volumes (1998)
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BibTeX
@MISC{Ghysels98causalitybetween,
author = {Eric Ghysels and Christian Gourieroux and Joanna Jasiak},
title = {Causality between Returns and Traded Volumes},
year = {1998}
}
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Abstract
This paper examines causality between the series of returns and transaction volumes in high frequency data. The dynamics of both series is restricted to transitions between a finite number of states. Depending on the state selection criteria, this approach approximates the dynamics of varying market regimes, or in a broader sense reflects the time varying heterogeneity of traders behavior. Our analysis is based on returns and volumes represented by Markov chains with constant or time varying transition probabilities. We derive methods to estimate the transition probabilities, the long run equilibrium probability, and the instantaneous speed of adjustments. The limiting transition probability approximates the average proportion of time spent by the processes in a given state whereas the adjustment speed reveals the frequency of stock market fluctuations between states. The univariate return series is examined to identify varying market regimes and determine the impact of stat...
