THE DEPENDENCE OF MARKET RETURN VOLATILITY ON TRADING VOLUME IN KOREA AND THAILAND

The objective of this paper is to examine if the heteroskedasticity in stock market return data can be explained by incorporating trading volume as a mixing variable in the conditional variance equation. This study relies on daily returns and volumes of two developing markets in Asia, namely, the Korean Stock Exchange and the Stock Exchange of Thailand over the 9-year tumultuous period of 1990-1998. The results strongly suggest that the GARCH model adequately describes the two index return series in the absence of volume as a mixing variable. However, the introduction of volume does not succeed in eliminating or for that matter significantly reducing the ARCH and GARCH effects.