Analysis of Relationship between Stock Return, Trade Volume and Volatility: Evidences from the Banking Sector of Pakistani Market

Abstract

This research is aim to investigate the relationship between the stock return, trade volume and volatility of the Pakistani banking sector listed in the Karachi Stock Exchange. The study is aimed to take a sample period from Jan 2012 to June 2014. The estimation techniques applied to check the volatility by ARCH and GARCH. To test the relationship between the stock return, trading volume, the technique of VAR applied. The results show the causal relationship between the stock return and the trade volume. The variance equation of the GARCH Model shows the interaction between the trading volume and stock return. The results show that previous day volume has significant effects on the current stock return, it shows that the both the last days return and volume has power to effect the current returns.

Keywords: Pakistan Banking Sector, VAR, ARCH-GARCH, Volatility