Contemporaneous and asymmetric volume-return relationship: cross-product evidence from an emerging market

• Main Author: Jung-Chu Lin
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2016-03-01
• Series: Investment Management & Financial Innovations
• Online Access: https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/7605/imfi_en_2016_01_Lin.pdf

This paper demonstrates that both Taiwan’s exchange-traded funds (ETFs) and equities exhibit an asymmetric volume-return relationship in which the ETF display a mixed, negative or positive, asymmetry and the equity exhibits primarily a positive asymmetry. The positive asymmetry in equities and its decline with the progressive elimination of the short-sale restriction on equities support the costly short-sale hypothesis, which considers a costly short-sale restriction or asymmetric transaction costs on long and short trading to be the source of the asymmetry. The part of a less positive asymmetry in ETFs also consists with what the costly short-sale hypothesis predicts. The later information models that consider asymmetrically-informed traders or the heterogeneity of traders to be the source of the asymmetry explain the negative asymmetry in ETFs and the upward trend in the magnitude of volume-return correlation with the grow of volume quintiles. An important conclusion is that not a single hypothesis can be a universal explanation for the asymmetric volume-return relationship. Which hypothesis may explain the volume-return asymmetry depends largely on whether the short-sale restriction is present