Testing for Asymmetry in the Price-Volume Relationship of Listed Australian Banks

In this paper, we test for the presence of temporal asymmetry in the price-volume relationship for a unique industry sub-group, comprising the four major listed Australian trading banks, using daily share price and trading volume series. We have used a current popular methodology to capture the asymmetric relation between the two series. The major findings are (i) there is evidence of causality from prices to volumes, but not vice versa; (ii) there is causality from both positive and negative price changes to volume changes for all four banks, but only very weak evidence of causality from negative volume to price for the National Australia Bank and Westpac Banking Group; and (iii) negative price and volume changes have stronger effects than positive price and volume changes. These findings suggest the existence of significant feedback trading associated with these banking stocks, which can potentially be generalised to the wider Australian sharemarket. The findings can be explained in terms of short selling action of traders in response to price falls and the mentality and trading actions of bull and bear traders in response to price or volume movements.