Impact of trading volume on stock price volatility : an applied study on Amman Stock eExchange

Abstract EN

The study investigated the dynamic interactions among stock price volatility, number of transactions, and trading volume in Amman Stock Exchange.

The study used daily market data to the sample which contains of 100 companies.

The study period is from January 1, 2007 to December, 31, 2007.

Using vector autoregressive analysis (VAR) depending on RATS program, several results emerged.

Firstly, the study found that both number of transactions and stock price volatility are negatively influenced by each other, because number of transactions declines subsequent to an increase in price volatility.

Secondly, price volatility and trading volume are positively related and there is bilateral causality relationship.

The results indicated that number of transactions and trading volume has predictive power on stock price volatility, and also on each other.

Also, it is consistent with the sequential arrival of information models that new information flows into market to generate both trading volume and price movement.