Impact of Stock Returns on Trading Volume in Indian Stocks: A Panel ARDL Approach

Abstract

The purpose of this paper was to analyse the impact of stock returns on trading volume for the companies listed on BSE in India. This article attempted to analyse that whether there had been a significant impact of returns on the trading volume in the short-run and long-run. This study included a sample of 30 companies listed Sensex. To conduct this analysis, a two-stage methodology was employed. In the first stage, a panel autoregressive distributed lag (ARDL) approach was used to investigate the impact of stock returns on trading volume. In the second stage, the focus was on checking the cross-section short-run relationship in the sample by extending the ARDL estimation. The results showed that the short-run co-integration equation, all the variables have shown significant relationship. The returns have shown significant positive impact on trading volume in short-run whereas significant negative impact in the long-run. The lagged trading volume and stock returns have also shown significant positive impact on current trading volume. These findings have significant implications for investors, equity analysts and portfolio management firms for stock selection and trading patterns.

Keywords: ARDL, Stock Returns, Trading Volume, Panel Data, Sensex

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