Autocorrelation and Volume in the Chinese Stock Market

Research output: Contribution to journalArticle

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Abstract

This paper reports an empirical analysis of the relationship between return autocorrelation, trading volume and volatility, following the seminal paper by Campbell, Grossman and Wang (1992) using data for A shares traded on the Shanghai and Shenzhen stock exchanges for the period 1992–2002. Campbell et al. argue that autocorrelation of returns will be negatively related to trading volume given that market makers will need to be rewarded with higher returns for accommodating noise traders. For our full sample we find remarkably consistent support for the CGW hypothesis and results — return autocorrelations are negatively but non-linearly related to lagged trading volume and less strongly to volatility. These results are quite robust with respect to different messures of volume and volatility. We argue that this is a striking result in view of the substantial differences between the US market in the 1960s, 1970s and 1980s and the Chinese market of the 1990s. The relationship proves to be unstable over short sub-periods although whether this is due to the relatively short sample we use or to the inherent instability of the Chinese market in its first decade of operation will not be clear until much longer data sets are available for Chinese stock prices.
Original languageEnglish
Pages (from-to)289-309
JournalReview of Pacific Basin Financial Markets and Policies
Volume7
Issue number2
DOIs
Publication statusPublished - 2004

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Trading volume
Autocorrelation
Chinese stock market
Chinese market
Return autocorrelation
Shenzhen
Stock prices
Stock exchange
Market makers
Shanghai
Empirical analysis
Noise traders

Cite this

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title = "Autocorrelation and Volume in the Chinese Stock Market",
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Autocorrelation and Volume in the Chinese Stock Market. / Groenewold, Nicolaas.

In: Review of Pacific Basin Financial Markets and Policies, Vol. 7, No. 2, 2004, p. 289-309.

Research output: Contribution to journalArticle

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