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The Volume-Price Relationship at the High-Frequency Scale: Evidence From DCC-GARCH

Stephan Unger

Abstract


This article investigates the time-varying high-frequency price-volume relationship from two perspectives. At the high-frequency time scale, we show that the time varying conditional correlation between price and volume changes exhibits distinct excitational spike regimes that provide a rich set of patterns unexplored before. Impulse response analysis based on a high-frequency Vector-autoregressive specification show that volume has greater impact on price than vice versa. Our results therefore suggests that volume can be seen as a proxy for information flows. Due to market micro-structure contamination, we show that smoothing and pre-averaging is necessary to uncover the high-frequency relationship between price and volume.


Keywords


Information flows; High-Frequency trading; DCC-GARCH; VAR; Impulse response analysis; Price-Volume relationship

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DOI: http://dx.doi.org/10.5750/jpm.v12i3.1592

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