The Empirical Relationship Between Stock Returns and Trading Volumes in Pakistan

Abstract

This st udy deals with the relationship between Stock Ret urns and Trading Volumes in Pakistan. Trading Volume captures the important information contained in the traders' i nf ormation signals and may be useful in interpreting inf ormation contained in Prices. In Pakistan, not a great deal of analysis has been done on stock returns and trading volumes by using sophisticat ed econometrics model s.In this research the empirical relationship between Stock ret urns and Trading volume in Pakistani market i s investi gat ed and how bot h t hese variables affect each other usi ng Correlogram, Unit root (Augment ed Dickey Fuller) test and Vector Auto Re gression model for the relationship and si gnificance of the data. To fulfill the requirements of the research, 5 years daily st ock prices of KSE 100 index and 5 years daily data of t rading volume is collected. All the data i s arr anged in Microsoft Excel and measured with t he he lp of Eviews software. It is concluded from t he analysis that there is an overall posi tive relationship between Stock Returns and Trading Volumes in Pakistan. The t-statistics in VAR model is showing posi tive relationship i n some l ags between the variables. Hence it may be significant for an investor to i nvest i n Pakistan by relating t he both variables and t heir i nf ormation. iii