Stock Return and Trading Volume Relation in Nepalese Stock Market: An ARDL Approach

Abstract

The relationship between stock returns and trading volume observed in this research is based on 149 monthly data (mid-July 2005 to mid-December 2017) of NEPSE index. The relationship between stock returns and trading volume is examined using Autoregressive Distributed Lag approach. The research investigated the long-run and short-run relationship between trading volume and stock returns. The study detected significantly positive relationship between trading volume and stock returns in both long as well as short run. Therefore, the research concludes that impact of stock returns on trading volume is significant in Nepalese Stock Market, indicates that market participants use volume as an introduction of stock returns. From investment perspective, the relationship between trading volume and stock returns is of great importance to individuals who invest in share market instruments.

Keywords: Trading volume, stock returns, ARDL approach