The empirical relationship between trading volumes and returns volatility at the Nairobi Stock Exchange
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Date
2006-09Author
Karungari, Florence G
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The relationship between Trading Volume and Stock return volatility can lead to
many insights in financial theory, particularly the Black - Scholes type derivative
pricing formula. Knowledge of this relationship helps explain how returns are
generated and the implications for inferring return behavior from trading volume
data. Over the past ten years, much work has been done, mostly in developed stock
markets, trying to understand this relationship.
This paper presents an empirical analysis of the relationship between trading volume
and returns volatility at the Nairobi Stock Exchange. Research was carried out on 20
companies, which constitute the NSE 20 Share Index that remained listed at the
NSE and traded over five year period under study (1998 - 2002). The study used
Regression as well as Correlation to determine whether there exists a relationship
and the degree of association between trading volume and returns volatility.
Daily trading volumes were used to construct monthly trading volume data while
daily returns to construct monthly returns data. Return Volatility was arrived at
through computation of Standard '~eviation of monthly returns. Correlation
coefficient and Coefficient of Determination were used to find the relationship
between returns volatility and trading volumes for the period under study.
The findings show that there was no relationship between trading volume and
returns volatility of the companies that constitutes NSE 20 Share Index. Specifically
past history of the series cannot be used to predict the future in any meaningful way.
Publisher
School of Business, University of Nairobi
Description
Masters of Business Administration (MBA)