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Dynamic Relationship among the Volatility of Return Rate、Average Trade Size and Number of Transaction

Author: XuChao
Tutor: DongPu
School: Dongbei University of Finance
Course: Financial Engineering
Keywords: daily data return rate average trade size number of transaction GARCH model VAR model Granger Causality Test Impulse Response Analysis
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 34
Quote: 0
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Abstract


The rapid development of China’s stock exchange market objectively requires our keener recognition of the financial market risks. In the case of a substantially fluctuation in the stock market, moderate regulations should be taken timely through monitoring on the series of index changes in the stock exchange market hereby insure the healthy and ordered development of our domestic stock exchange market.Return rate of financial asset has been being a very important concept in financial economics with its volatility being a key research field in modern finance. The importance of volatility of return rate lies in its function of measuring the risks of stock exchange market. Whether we can correctly and rationally describe the return rate of stock exchange market is directly related to the correctness of our choice of asset allocation, the effectiveness of investment risk avoidance, the rationality of asset pricing of capital and option valuation. As we known, China’s current financial market is not yet strong and efficient enough. It happens that faculty speculators use inside information to invest thereby may cause big fluctuations of stock prices. However, changes of price can be showed by previous changes of turnover. Experience teaches us that the abrupt increase of turnover may bring about significant fluctuation of return rate, that is, trade size and return rate of stock are related.In previous researches, only the relationship between return rate and the average trade size of stock was concerned. This paper uses new research varieties-average trade size and number of transactions to study the causal relationship between the return rate and trade size of stock. Firstly, study on the volatility of the series of return rate is conducted. Then the vector auto-regression model is used to fit the condition variance, number of transactions and average trade size to find out their causal relationship and test it by Granger Causality Test. Further more, in order to acquire the impact of certain information on a specific variety, a multiple pulse-response function is introduced in to analysis the conductional relationship between the varieties. After a series of analysis research on stocks of China Merchants Bank, it is found that there is a double action Granger Causality relationship between the volatility of return rate and average trade size as well as between the trade size and number of transactions; the volatility of return rate may cause the change of number of transaction while the number of transaction would not cause the volatility of return rate. The result of this paper may contribute to our better understanding of how the volatility of stock return rate, number of transaction and average trade size influence the risks of financial market and hence improve the risk management of investors in short term transaction.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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