Article

The Arrival of Information and Price IIM Kozhikode Society & Management Review
10(1) 7–19, 2021
Adjustment Across Extreme Quantiles: © 2020 Indian Institute
of Management Kozhikode
Global Evidence Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/2277975220937994
journals.sagepub.com/home/ksm

Abhinava Tripathi1

Abstract
This study investigates the impact of information arrival on prices for 21 major global market indices for the period
1998–2018, employing quantile regression methodology. The results show that there is a contemporaneous and causal
effect of volume on returns. This return-volume relation is a manifestation of systematic market-wide information that
is released in an autocorrelated manner to market participants. This information is absorbed by the market participants
over short horizons, within a day. This leads to uniform expectations and, in turn, lower volatility levels. The effect of
volume on return is heterogeneous across the conditional quantiles, reflecting the contrasting patterns in the transmis-
sion of positive and negative news. This evidence is more pronounced when the intensity of information arrival is high
(the tails of return distribution), which is consistent with the mixture of distribution hypothesis and information asym-
metry hypothesis.

Keywords
Accounting and finance, business economics, financial economics, financial markets

Introduction (Baruník, Kočenda, & Vácha, 2016; BenSaïda, 2019;

The effect of information on prices is an integral part of
various theoretical models in the financial market literature
(Andersen, 1996; Copeland & Galai, 1983). The role of
volume in capturing the information arrival and its rela-
tionship with the return and return-volatility (hereafter,
volatility) has been widely examined and documented
(Campbell, Grossman, & Wang, 1993; Karpoff, 1987). The
subject, however, continues to remain part of an active
debate in the financial economics literature, particularly
for two reasons: (a) financial markets have witnessed sig-
nificant technological advancements caused by the growth
in internet and algorithmic trading (Bloomfield, O’Hara, &
Saar, 2015; Chordia, Roll, & Subrahmanyam, 2005, 2008;
O’Hara, 2015), which has serious implications for the dis-
semination of news and its incorporation in prices and, in
turn, the return, volume and volatility relation; and (b) the
recent evidence has indicated that the transmission of good
and bad news shocks in financial markets is asymmetric
Clements Hurn, & Volkov, 2015) and contrasting to that
observed during normal conditions. The results from these
studies suggest that the effect of volume on return may
have different implications across the conditional quantiles
of return and volatility.
We contribute to the literature by revisiting the effect of
information arrival on return and volatility across condi-
tional quantiles. The study offers considerable global evi-
dence on the systematic effect of information shocks on
price adjustment by employing the quantile regression
approach on 21 major global market indices. The results
show that the transmission of positive and negative news
shocks is heterogeneous across the conditional quantiles of
return distribution. This news is released in an autocorre-
lated piecemeal fashion and absorbed by the market
participants within the day. This leads to uniformity of
expectations and better market quality, leading to lower
volatility levels. This evidence is more pronounced along
the tails of the return distribution and is consistent with the

1
Department of Finance and Accounting, Indian Institute of Management, Lucknow, India.

Corresponding author:
Abhinava Tripathi, Department of Finance and Accounting, Indian Institute of Management, Lucknow 226013, Uttar Pradesh, India.
E-mail: fpm18005@iiml.ac.in
8 IIM Kozhikode Society & Management Review 10(1)
mixture of distribution hypothesis (MDH) and the infor-
mation asymmetry hypothesis.
The remaining study is organized into four sections.
Section 2 describes the background and literature. Section
3 discusses the data and methodology. Section 4 presents
the empirical findings, and Section 5 concludes the study.
Background and Literature
Return–Volume–Volatility Relation
The role of financial markets towards the efficient alloc-
ation of resources in an economy and dissemination of
relevant economic information has been widely acknow-
ledged (Karpoff, 1987). The arrival of new information, its
incorporation into prices, and price movement is caused by
the trading activity of market participants (Andersen, 1996;
Campbell et al., 1993; Foster & Viswanathan, 1993). The
actions of market participants are largely driven by liqui-
dity needs and information asymmetry. Essentially, the
volume measure is employed to capture these aspects of a
financial market, that is, liquidity and arrival of informa-
tion. The old Wall Street adage that ‘it takes volume to
move prices’ has been long recognized in financial market
literature (Karpoff, 1987).
Next, how the prices respond to these actions of market
participants has been another ongoing debate in the finan-
cial economics literature, namely, market efficiency (Fama,
1970, 1991, 1998). The movement in prices, on account of
information or noise (idiosyncratic factors), is proxied by the
return measure. Finally, the volatility measure has been
widely employed to capture the uncertainty (risk) related to
the actions of market participants (French, Schwert, &
Stambaugh, 1987; Schwert, 1989). This uncertainty originates
from various sources (e.g., macroeconomic risk, security-
specific risk, regulatory risk) and affects market participants
from two channels – inventory concerns and information
asymmetry (Chordia et al., 2008; Kim & Stoll, 2014; Stoll,
2000). Together, these variables (return, volume and volati-
lity) capture the trading activity, information transmission,
price movement, and risk-related attributes of a financial
market. Detailed frameworks offered by the literature to
model these variables are provided in the next sub-section.
Conceptual Framework and Related Literature
Primarily, the following hypotheses provide the theoreti-
cal contours to the return, volume and volatility relation.
(a) Mixture of distribution hypothesis, MDH (e.g., Clark,
1973; Epps & Epps, 1976; Li & Wu, 2006; Tauchen &
Pitts, 1983): MDH suggests that the information flow acts
as a common latent factor that affects the price and volume
simultaneously. The hypothesis postulates a strong con-
temporaneous relationship between the volume and vola-
tility, and return and volume. (b) Information asymmetry
hypothesis (Chen, Firth, & Rui, 2001; Foster & Viswanathan,
1993; Kocagil & Shachmurove, 1998): The hypothesis
argues that markets are inhabited by three major types of
market participants: market makers, liquidity-driven/noise
traders and informed traders. Informed traders carry pri-
vate information, which arrives in the market over time as
the trading activity takes place. The arrival of positive
information leads to buy trades and an increase in prices,
and in turn, a positive return-volume relation. In contrast,
the arrival of negative information leads to sell trades and
decrease in prices and, in turn, a negative return-volume
relation. The process that generates this information may
itself be autocorrelated and, in turn, may have persistent
effects on price (Suominen, 2001). (c) Sequential informa-
tion arrival hypothesis (SIAH; Copeland, 1976; Darrat,
Rahman, & Zhong, 2003; Jennings, Starks, & Fellingham,
1981; Lamoureux & Lastrapes, 1994): The hypothesis pro-
poses that markets exhibit a series of transitionary equilib-
ria between the initial and final equilibria. The initial and
final equilibria are characterized by complete information
aggregation, that is, a broad agreement over the true price,
higher market quality and lower volatility levels. In the
short term, however, these traders receive information
sequentially and process it heterogeneously. Accordingly,
they revise their expectations in a disparate manner. This
causes a lead–lag relation between volume and volatility
and volume and return. Moreover, this heterogeneity in
expectations leads to excess volatility.
Data Description and Methodology
Data Description
The daily market index data for 16 major financial markets
(compsing 21 indices; Table 1) are downloaded from
Bloomberg. These are the 16 largest financial markets
worldwide and represent most of the global trading activity.
These markets comprise a mix of important developed and
emerging markets; thus, establishing the generalizability
of our results. The study covers a period of 21 years, from 1
January 1998 to 31 December 2018. We aim to select the
maximum period for which daily data are continuously
available across all the markets. Over this period, all finan-
cial markets in the sample exhibit a reasonable extent
of development and maturity in operations as indicated
by the trading activity related characteristics (turnover,
informational efficiency, automation and systems related
to trade execution and settlement). Moreover, the sample
Tripathi 9

Table 1.  Details of the Market Indices Included in the Study

Country Index Stock Exchange

American Stock Exchanges
U.S.A. NASDAQ Composite NASDAQ
S&P500 NYSE, NASDAQ
Dow Jones Industrial Average (DJIA) NYSE, NASDAQ
NYSE Composite NYSE
Canada S&P/TSX Composite Toronto Stock Exchange
Brazil IBOVESPA Sao Paulo Stock Exchange
European Stock Exchanges
U.K. Financial Times Stock Exchange (FTSE)-100 London Stock Exchange
Germany Deutscher Aktienindex (DAX) Performance Index Frankfurt Stock Exchange
France Cotation Assistée en Continu (CAC-40) Euronext-Paris
Sweden OMX Stockholm All Share Index (OMXSPI) Stockholm Stock Exchange
Switzerland Swiss Market Index (SMI) SIX Swiss Exchange
Russia MOEX Moscow Stock Exchange
Asia-Pacific Region Stock Exchange
China SSE Composite Shanghai Stock Exchange
SZSE Component Shenzhen Stock Exchange
Japan TOPIX Tokyo Stock Exchange
Nikkei-225 Tokyo Stock Exchange
Hong Kong Hang Seng Hong Kong Stock Exchange
India Nifty-500 National Stock Exchange
Australia ASX Australian Securities exchange
Taiwan TWSE/TAIEX Taiwan Stock Exchange
South-Korea Korea Composite Stock Price (KOSPI) Korea Stock Exchange
Source: Bloomberg Database.

period offers a sufficient number of daily observations to Methodology

ensure the reliability of results.1 The log-returns [rt = In (pt/
pt–1)] are computed using the closing index values. Following
Chen (2012) and Chordia, Roll, and Subrahmanyam (2000),
the log-difference between the absolute volumes (similar to
returns) is employed as the volume measure2 [rt = Vt = In (vt/
vt–1)]. The volume change measure used in the study essen-
tially proxies the effect of information shocks on trading
activity. Descriptive statistics of the return series are pro-
To examine the effect of information (proxied by the
volume measure) on prices, we first employ the follow-
ing ordinary least square (OLS) based bivariate model
[Equation (1)] of Chordia, Subrahmanyam, and Anshuman
(2001).
rt = a 0 + b 0 D + | i = 1 b i rt - i + | j = 0 c j V t - j
p q

vided in Table 2. The results of autoregressive conditional  (1)

heteroscedasticity (ARCH) and unit-root tests on return
series are provided in Table 3. The returns exhibit non-nor-
mality and excess kurtosis. Moreover, the return series are
stationary and exhibit significant ARCH effects. Therefore,
to proxy volatility, we extract the conditional variance (h 2t )
from the AR(4)/EGARCH(1,1) model.3 The time-series
movement of the conditional variance (h 2t ) is plotted in
Appendix B. Similar tests are conducted on the volume
series, and the results are provided in Appendix A. The
volume series are stationary, though non-normal, and exhibit
excess kurtosis.
+ | j = 0 d j Vt - j ) D + f t
q
Here ‘D’ is the dummy variable, taking 1 for negative
returns and 0 otherwise. Following the BIC criteria, we con-
sider four lags (p = 4, q = 4)4 of the return and volume
variables. We use robust standard errors to compute the
t-statistics.
This kind of conditional mean (OLS) based estimation
is expected to be vitiated due to the averaging of positive
and negative quantile causal effects, as demonstrated in our
study. Therefore, we further extend this model [Equation
Table 2.   Descriptive Statistics for Daily Returns

Index N Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis JB

 1 Australia (ASX) 5,305 0.01% 0.06% 8.81% −8.71% 1.11% −0.21 8.82 7527.61***
 2 Brazil (IBOVESPA) 5,193 0.04% 0.08% 28.82% −17.23% 1.97% 0.48 17.16 43591.16***
 3 Paris (CAC−40) 5,360 0.01% 0.04% 10.59% −9.47% 1.43% −0.05 7.76 5069.31***
 4 Germany (DAX) 5,329 0.02% 0.08% 10.80% −8.87% 1.49% −0.09 7.16 3857.97***
 5 U.S.A. (DJIA) 5,283 0.02% 0.05% 10.51% −8.20% 1.14% −0.13 10.73 13159.05***
 6 Hong Kong (HangSeng) 5,179 0.02% 0.05% 13.41% −13.58% 1.57% 0.09 10.54 12286.07***
 7 Korea (KOSPI) 5,231 0.03% 0.07% 11.28% −12.80% 1.67% −0.30 8.22 6022.90***
 8 UK (FTSE100) 5,305 0.00% 0.04% 9.38% −9.27% 1.18% −0.15 8.72 7238.47***
 9 Russia (MOEX) 5,252 0.06% 0.09% 27.50% −20.66% 2.48% 0.23 19.95 62938.80***
10 Japan (Nikkei−225) 5,157 0.01% 0.04% 13.23% −12.11% 1.51% −0.35 8.86 7471.15***
11 U.S.A. (Nasdaq−Comp) 5,283 0.03% 0.10% 13.25% −10.17% 1.60% −0.05 8.34 6281.26***
12 India (Nifty−500) 5,232 0.05% 0.14% 15.03% −12.88% 1.50% −0.48 10.07 43591.16***
13 U.S.A. (NYSE−Comp) 5,283 0.01% 0.06% 11.53% −10.23% 1.19% −0.36 12.61 20423.78***
14 Sweden (OMX) 5,272 0.02% 0.07% 9.88% −8.07% 1.37% −0.06 7.04 3581.53***
15 Switzerland (SMI) 5,280 0.01% 0.05% 10.79% −9.07% 1.20% −0.18 9.24 8595.73***
16 China (SSE) 5,087 0.01% 0.05% 9.40% −9.26% 1.58% −0.32 7.81 4995.94***
17 U.S.A. (S&P500) 5,283 0.02% 0.05% 10.96% −9.47% 1.21% −0.23 10.96 13989.13***
18 China (SZSE) 5,087 0.02% 0.12% 9.24% −8.93% 1.75% −0.50 6.48 2773.63***
19 Taiwan (TAIEX) 5,264 0.00% 0.04% 6.52% −6.91% 1.36% −0.18 5.93 1907.32***
20 Canada (S&P/TSX) 5,157 0.00% 0.03% 12.86% −10.01% 1.37% −0.31 8.69 7043.03***
21 Tokyo (TOPIX) 5,277 0.01% 0.07% 9.37% −9.79% 1.09% −0.65 12.18 18910.02***
Source: The author.
Note: The table provides summary statistics of daily returns for the 21 indices (16 countries), over the study period (1 January 1998 to 31 December 2018).
Tripathi 11

Table 3.  Tests for Autoregressive Conditional Heteroscedasticity (ARCH) Effect and Stationarity on Daily Returns

Index ARCH(1) ARCH(5) ADF PP

 1 Australia (ASX) 275.78*** 1111.32*** −17.91*** −4946.28***
 2 Brazil (IBOVESPA) 200.98*** 401.08*** −15.71*** −4826.76***
 3 Paris (CAC−40) 196.23*** 793.33*** −17.36*** −4930.20***
 4 Germany (DAX) 167.20*** 807.36*** −17.07*** −5070.12***
 5 U.S.A. (DJIA) 182.58*** 1073.01*** −17.80*** −5318.75***
 6 Hong Kong (HangSeng) 474.12*** 862.05*** −16.62*** −4921.36***
 7 Korea (KOSPI) 168.87*** 668.56*** −15.76*** −4690.98***
 8 UK (FTSE100) 298.23*** 1123.03*** −18.33*** −4940.88***
 9 Russia (MOEX) 429.95*** 771.18*** −16.72*** −4523.93***
10 Japan (Nikkei−225) 347.75*** 1001.62*** −16.67*** −5104.87***
11 U.S.A. (Nasdaq−Comp) 274.05*** 887.84*** −16.80*** −5157.61***
12 India (Nifty−500) 423.80*** 591.24*** −15.38*** −4742.04***
13 U.S.A. (NYSE−Comp) 265.84*** 1414.31*** −17.61*** −5187.15***
14 Sweden (OMX) 176.13*** 695.58*** −16.28*** −4805.31***
15 Switzerland (SMI) 637.78*** 1097.52*** −17.65*** −4625.26***
16 China (SSE) 137.58*** 398.84*** −14.84*** −5099.05***
17 U.S.A. (S&P500) 227.09*** 1167.54*** −17.64*** −5244.70***
18 China (SZSE) 177.58*** 463.51*** −15.20*** −4969.96***
19 Taiwan (TAIEX) 129.10*** 519.65*** −16.38*** −4905.44***
20 Canada (S&P/TSX) 406.78*** 965.97*** −16.63*** −4668.96***
21 Tokyo (TOPIX) 577.28*** 1116.5*** −17.18*** −4951.28***
Source: The author.
Note: ‘ADF’ denotes the test statistic from the Augmented Dickey–Fuller (ADF) test, ‘PP’ is the test statistic from the Philips–Perron test. The ARCH
effect is tested for 1 and 5 lags.

(2)] in a quantile regression framework (Koenker, 2013;
Koenker & Xiao, 2006). The quantile approach to estima-
tion is particularly relevant in this case for the following
reasons. (a) The approach is more suitable in estimating
nonlinear relationships similar to that observed between
volume and price.5 (b) Excess kurtosis, skewness, and non-
normality (Koenker, 2004; Koenker & Hallock, 2001) are
common features of security return distributions. For this
kind of variables, the quantile regression methodology
provides robust estimates, and is particularly suitable for
examining the tail behaviour (Koenker, 2004; Koenker &
Hallock, 2001). Some of the previous studies resort to
excluding extreme outliers. We argue that these observa-
tions may indicate important economic events and hence
exclusion may lead to loss of important information.6
(c) Lastly, prior research has often attempted to model cri-
sis events by explicitly accounting for the event (e.g., using
dummy variables). These events are characterized by
falling markets, that is, extremely low returns and high
volatility. The quantile regression methodology makes an
important contribution to the literature by estimating the
relationship separately across different quantiles in a sys-
tematic manner. Thus, obviating the need for explicitly
modelling the crisis events. The approach allows us to
examine the relation at both the upper and lower quantiles
of the return distribution. Finally, we also examine the effect
of volume on the conditional volatility using the quan-
tile regression framework [Equation (3)]. The following
models are employed in the study.
Q rt (x | rt - 1, g, rt - p, Vt, gg, Vt - q)
= a ^ x h + | i = 1 b i ^ x h rt - i
p
(2)
+| c j ^xh Vt - j
q
j=0
Q h 2t (x | Vt, gg, Vt - q)
(3)
= al ^ xh + | j = 0 clj ^ xh Vt - j
q
The ‘τ-th’ conditional quantile function (0<τ<1) of the
return [Q rt (x | rt - 1, g g, rt - p, Vt, g g, Vt - q)] and con-
ditional volatility [Q h 2t (x | Vt, g g, Vt - q)] are modelled
as a linear function of the contemporaneous and lagged
volume terms for different values of τ (= 0.05, 0.10, 0.15, …
0.95), and estimated as follows: The ‘τ-th’ conditional
quantile of the stochastic error term is made zero by the
quantile regression estimation process. ci(τ) represent
the quantile specific coefficients of the lagged volume
terms. For the implementation of the model, we use
‘quantreg’ package available in ‘R’ (Koenker, 2013).
12 IIM Kozhikode Society & Management Review 10(1)
Empirical Results
The results from the standard OLS regressions [Equation
(2)] are reported in Table 4. We find that the coefficient of
the ‘loss-dummy’ (D) and interaction terms are consist-
ently significant and negative, while those of volume terms
are significant and positive. These results suggest that the
information arrival and its incorporation across positive
and negative returns is considerably different. These results
substantiate the fact that the arrival of positive and nega-
tive news may have different implications for prices.
However, we argue that these differences across positive
and negative return distributions may not be as abrupt as
one may surmise from these results. That is, the linkage
between return and volume may exhibit a non-linear
smooth transition across the different regimes of return
distribution.
This motivates us to examine the causal quantile effects
of volume on return using the quantile regression approach
[Equation (2)]. Figure 1 summarizes the quantile regression
results for the contemporaneous and causal effects of vol-
ume on returns. Detailed results are provided in Table C1
(Appendix C). Figure 1 (a), (b) and (c) depict the quantile
relation for the stock exchanges in America, Europe, and
Asia-Pacific regions. Results illustrate the t-statistics for the
contemporaneous and lagged volume terms (primary axis on
the left) and the goodness-of-fit measure7 (secondary axis on
the right). The contemporaneous and causal return-volume
relation appears to be asymmetric across conditional return
quantiles (except Korea, Taiwan, Hong Kong and China)8;
that is, a positive relationship is observed for the higher
return quantiles and vice versa. This evidence is more pro-
nounced along the tails of the return distribution. Furthermore,
the significance of the lagged terms indicates the persistence
of information effects. The arrival of positive and negative
news shocks affects the price and volume in an asymmetric
manner, causing the positive and negative contemporaneous
and causal return-volume relation. These results suggest a
dynamic (significant lagged volume terms) heterogenous
return-volume relation across the quantiles of return distri-
bution. These results support the MDH and the information
asymmetry hypothesis.
Interestingly, for the more mature markets like Australia,
Paris, Germany, the U.S., the U.K., Sweden and Switzerland,
the magnitude of the effect of volume on returns around
lower tails (t = .05 to 0.25) is substantially higher than that
around higher tails (t = .70 to 0.95). In contrast, less mature
markets, where information asymmetry and investor senti-
ment are expected to play a larger role (e.g., Brazil, Hong
Kong, South Korea, Russia, China and Taiwan) exhibit an
opposite pattern. These more mature markets are expect-
ed to be dominated by loss-averse rational investors and
exhibit higher levels of market efficiency. These loss-
averse rational investors gauge the information content of
volume more efficiently and are particularly sensitive to
the arrival of negative news (Bellemare, Krause, Kröger, &
Zhang, 2005; Dimmock & Kouwenberg, 2010; Thaler,
Tversky, Kahnemanm & Schwartz, 1997). In contrast, less
mature markets are predominantly inhabited by the senti-
ment-driven noise traders who are known to be more active
during high-sentiment periods (Baker & Stein, 2004; Baker
& Wurgler, 2006; Barberis, Shleifer, & Vishny, 1998).
Since we are working with stock indices, the effect of
security-specific private information on the return-volume
relation is offset (Llorente, Michaely, Saar, & Wang, 2002).
It is expected that only the marketwide systematic factors
(e.g., central bank interventions, marketwide sentiments)
may affect return-volume relation in market indices. Two
plausible reasons are offered by the literature that may
cause the observed return-volume relation. First, as pre-
dicted by the SIAH, the macroeconomic information is
absorbed by the market participants gradually, over a
period. Thereby these market participants reach the final
equilibrium of uniform expectations, starting from an ini-
tial equilibrium. This may manifest in the form of observed
return-volume relation with persistent lags of volume. The
second plausible reason suggests that the macroeconomic
information itself is released gradually over a period in an
autocorrelated piecemeal fashion (Malinova & Park, 2010;
Suominen, 2001). This may also cause the observed lead–
lag return-volume relation. In the first case, the SIAH pre-
dicts that the presence of heterogeneously informed traders
in the market would reduce the market quality (Copeland,
1976; Darrat et al., 2003; Jennings et al., 1981; Lamoureux
& Lastrapes, 1994). Therefore, the arrival of information
should lead to an increase in volatility. Moreover, this
increased volatility is expected to dissipate gradually as the
market participants become uniformly informed. This may
result in a positive causal relation from volume to volatil-
ity. In the second case, we argue that each piece of the
macroeconomic information is absorbed over extremely
short horizons – that is, 5–30 minutes (Chordia et al., 2005,
2008; Darrat et al., 2003) due to technological advances in
trading and dissemination of news. Hence, the effect of
SIAH on prices over daily intervals remains muted. That is,
we can reasonably expect the daily closing prices as the
initial and final equilibria in the sense of Copeland (1976).
Thus, there is uniformity of expectations and hence lower
volatility and higher market quality (Malinova & Park,
2010) over daily intervals. Both explanations result in test-
able hypotheses with contrasting implications. To test these
hypotheses, we examine the volume–volatility relation
[Equation (3)] in a quantile regression framework.9 The
detailed results are provided in Table C2 (Appendix C).
Table 4.  Regression of Returns on Volume [Equation (1)]

N D r t–1 r t–2 r t–3 r t–4 V Vt–1 Vt–2

t
Australia (ASX) 5,301 −45.19*** −1.95* −0.96 −3.42*** 1.49 5.95*** 2.92*** 2.35**
Brazil (IBOVESPA) 5,164 −50.61*** −0.05 −1.08 −1.03 −1.51 10.28*** 4.85*** 4.92***
Paris (CAC−40) 5,356 −52.78*** −1.39 −1.93* −2.89*** 0.64 9.09*** 5.38*** 3.92***
Germany (DAX) 5,325 −49.83*** −1.59 −1.62 −1.79* 1.17 7.61*** 3.64*** 3.05***
U.S.A. (DJIA) 5,279 −45.70*** −2.60*** −2.12** 0.27 −0.19 5.75*** 3.18*** 3.3***
Hong Kong (HangSeng) 5,175 −46.72*** −1.19 −1.29 −0.78 −0.96 12.51*** 5.95*** 4.71***
Korea (KOSPI) 5,227 −44.06*** 1.16 −1.71* −0.36 −0.88 8.74*** 3.61*** 2.11**
UK (FTSE100) 4,269 −38.05*** −3.17*** −0.85 −3.54*** 1.12 5.35*** 2.52** 1.93*
Russia (MOEX) 3,833 −34.51*** −0.59 −0.32 −0.81 0.91 4.68*** 1.86* 4.06***
Japan (Nikkei−225) 4,476 −49.07*** −1.53 −0.31 −0.67 −1.27 7.62*** 3.67*** 3.12***
U.S.A. (Nasdaq−Comp) 5,279 −42.70*** −2.64*** −2.45** 0.36 −1.14 6.62*** 4.25*** 3.88***
India (Nifty−500) 4,084 −38.56*** 2.50** −2.00** 0.09 0.14 −0.52 0.16 −0.08
U.S.A. (NYSE−Comp) 4,044 −33.92*** −2.90*** −1.45 0.32 −0.12 4.39*** 2.24** 3.67***
Sweden (OMX) 4,215 −43.72*** −0.77 −1.01 −2.47** −0.71 6.90*** 4.68*** 3.42***
Switzerland (SMI) 5,244 −41.78*** 0.19 −1.28 −1.72* 1.26 6.04*** 4.36*** 4.27***
China (SSE) 5,083 −46.45*** −2.26** −2.35** 0.38 3.42*** 17.59*** 6.70*** 5.19***
U.S.A. (S&P500) 5,279 −44.56*** −2.76*** −1.98** 0.03 −0.68 5.36*** 2.80*** 3.45***
China (SZSE) 4,237 −46.13*** −1.11 −1.92* 0.61 2.04** 13.69*** 3.68*** 3.54***
Taiwan (TAIEX) 5,255 −51.81*** 0.21 −0.82 1.19 −1.69* 14.67*** 6.31*** 4.48***
Canada (S&P/TSX) 5,153 −52.14*** −0.85 −1.28 −1.24 −1.58 7.71*** 4.21*** 3.10***
Tokyo (TOPIX) 5,273 −43.40*** −0.71 −1.44 1.13 0.14 7.58*** 2.81*** 2.70***
Vt–3 Vt–4 D* Vt D* Vt–1 D* Vt–2 D* Vt–3 D* Vt–4 Adj. R2 (%) F−value
Australia (ASX) 2.76*** 2.46** −10.36*** −4.90*** −3.40*** −3.05*** −2.85*** 50.50% 153.97***
Brazil (IBOVESPA) 2.93*** 2.52** −10.72*** −5.61*** −4.62*** −2.92*** −2.29** 51.79% 187.49***
Paris (CAC−40) 3.18*** 2.69*** −13.30*** −7.36*** −5.62*** −4.47*** −4.12*** 52.45% 201.06***
Germany (DAX) 2.00** 3.13*** −13.20*** −6.28*** −5.05*** −4.21*** −5.15*** 52.50% 170.19***
U.S.A. (DJIA) 2.33** 3.81*** −10.96*** −6.93*** −5.63*** −3.65*** −5.06*** 48.86% 154.63***
Hong Kong (HangSeng) 4.20*** 2.90*** −13.08*** −8.46*** −5.75*** −5.70*** −4.21*** 52.40% 164.78***
Korea (KOSPI) 2.43** −0.70 −5.82*** −1.82* 0.00 −0.90 0.23 46.52% 134.49***
UK (FTSE100) 2.44** 2.31** −9.70*** −4.17*** −2.95*** −2.64*** −2.52** 48.33% 112.65***

Vt–3 Vt–4 D* Vt D* Vt–1 D* Vt–2 D* Vt–3 D* Vt–4 Adj.R2 (%) F−value

Russia (MOEX) 1.75* 2.28** −5.79*** −3.85*** −3.87*** −2.34** −2.49** 42.34% 101.79***
Japan (Nikkei−225) 2.22** 0.89 −10.66*** −5.24*** −4.31*** −3.26*** −2.74*** 52.14% 198.71***
(Table 4 continued)
(Table 4 continued)
U.S.A. (Nasdaq−Comp) 2.56** 2.63*** −9.50*** −5.34*** −3.94*** −3.09*** −3.53*** 48.58% 126.21***
India (Nifty−500) −0.22 −0.23 −1.32 −1.36 −1.39 −1.63 −1.92* 47.85% 120.28***
U.S.A. (NYSE−Comp) 2.54** 3.58*** −7.96*** −5.01*** −4.21*** −3.50*** −4.93*** 43.91% 88.62***
Sweden (OMX) 2.28** 2.62*** −11.44*** −5.27*** −5.10*** −3.53*** −4.23*** 50.70% 142.64***
Switzerland (SMI) 4.41*** 4.49*** −11.26*** −6.88*** −5.28*** −4.46*** −5.99*** 50.71% 123.95***
China (SSE) 2.15** 2.16** −16.09*** −5.03*** −4.32*** −1.62 −2.79*** 54.12% 171.17***
U.S.A. (S&P500) 1.99** 3.77*** −10.13*** −5.03*** −4.81*** −3.65*** −4.93*** 47.67% 144.03***
China (SZSE) 2.12** 2.50** −11.79*** −2.35** −1.73* −1.90* −2.41** 56.06% 161.97***
Taiwan (TAIEX) 3.20*** 4.01*** −11.57*** −3.93*** −2.9*** −3.15*** −4.16*** 53.05% 212.51***
Canada (S&P/TSX) 1.93* 1.75* −10.75*** −5.51*** −4.57*** −3.56*** −3.36*** 53.45% 225.79***
Tokyo (TOPIX) 1.75* 1.18 −9.55*** −5.08*** −3.81*** −2.08** −2.51** 47.19% 153.19***
Source: The author.
Note: The table presents the results of the OLS regression model. Daily returns are regressed on the contemporaneous and lagged volume terms and interaction terms (negative loss dummy with volume) in the
presence of the lagged returns. The results show the number of observations (N), t-statistic of the coefficients for the dummy variable (D), lagged returns, (rt - 1, rt - 2, rt - 3, rt - 4) contemporaneous and lagged volume
terms ^ Vt, Vt - 1, Vt - 2, Vt - 3, Vt - 4 h, and dummy-volume interaction terms ^ D * Vt, D * Vt - 1, D * Vt - 2, D * Vt - 3, D * Vt - 4 h, adjusted-R2, and F-values from the regression.
Tripathi 15

Figure 1(a).  The Results of the Return-Volume Quantile Regression Model [(Equation (2)] for the American Stock Exchanges
Source: The author.

Figure 1(b).  The Results of the Return-Volume Quantile Regression Model [(Equation (2)] for the European Stock Exchanges
Source: The author.
16 IIM Kozhikode Society & Management Review 10(1)

Figure 1(c).  The Results of the Return-Volume Quantile Regression Model [(Equation (2)] for the Asia-Pacific Region Stock
Exchanges
Source: The author.
Note: The figure illustrates the results from the quantile regression model [Equation (2)] for the contemporaneous and causal effect of the volume
on return across the conditional quantiles of the return distribution. The horizontal axis represents 20 quantiles with increments of 0.05. Figures 1
(a), (b), and (c) show the results for the major market indices of America, Europe and Asia-Pacific region. The figures depict the t-statistics for the
contemporaneous and lagged volume terms (Vt, Vt - 1, Vt - 2, Vt - 3, Vt - 4; primary axis on the left) and the goodness-of-fit measure (secondary axis on the
right). The goodness-of-fit measure is calculated as one minus the ratio between the appropriately weighted sum of absolute errors (deviations) from
the conditional model and that from the unconditional model. The t-statistics for the contemporaneous and lag 1, 2, 3, 4 terms, and goodness-of-fit
measure are denoted as C, 1, 2, 3, 4, and G, respectively.
Tripathi 17
These results predominantly suggest a significant and neg-
ative contemporaneous volume–volatility relation, broadly
in agreement with the second hypothesis. That is, the
macroeconomic information is released in an autocorre-
lated piecemeal manner. This information is revealed to
market participants through trade volume and absorbed
over extremely short horizons, within a day. As these
market participants become uniformly informed, the vola-
tility levels are reduced, and market quality is improved.
Two interesting observations are made from these results.
First, the effect of volume is particularly contrasting across
higher (τ = .75 to 0.95) quantiles from the rest of the
conditional volatility distribution. Across these quantiles,
volume has generally an insignificant relation with volatility.
This indicates that, unlike other quantiles, volume does not
contribute to the informativeness and market quality during
high volatility regimes. This is intuitive as well. These highly
volatile and uncertain environments are characterized by a
substantial presence of the sentiment-driven noise traders
and lower levels of market efficiency. Hence, in these market
conditions, the ability of market participants to gauge the
information content of trade volume is expected to be
relatively low. Second, this effect is particularly pronounced
in emerging markets such as Brazil, India, China, Taiwan
and Hong Kong. As in these markets, the effect of information
asymmetry is expected to play a more prominent role.
More developed markets like the U.S., the U.K., Australia,
Switzerland, Sweden, Paris, Germany and Japan exhibit a
more homogenous effect of volume on volatility across the
quantiles.
The results of this study are consistent with the MDH
and information asymmetry hypothesis. It appears that the
abnormal changes (shocks) in volume are associated with
large information events. Large positive and negative vol-
ume shocks have a positive and negative effect on prices
across the tails of the return distribution. Moreover, these
information effects on prices are persistent and stronger
across the tails. The tail events (crashes and booms) carry
fundamental information about the economy and market in
general, which is of great interest to various market partici-
pants. This information is revealed to market participants
over time, in an autocorrelated manner. These information
effects have a persisting impact on price movement.
Moreover, this information is absorbed by market partici-
pants within a day, thereby improving the quality of the
market and decreasing the volatility levels. Investors usu-
ally follow volume as an input to various technical indica-
tors in formulating trading strategies and may benefit from
the results of this study.
Furthermore, we argue against the hypothesis of irra-
tional security-specific sentiment-driven trading (Barberis
et al., 1998; Bondt & Thaler, 1985; Fabozzi, Fung, Lam, &
Wong, 2013) on two accounts. First, since we are examining
the largest and most efficient market indices, we expect the
effect of security-specific sentiments to dilute. Second, and
more importantly, the effect of sentiment is transitory and is
widely known to exhibit price reversals. However, we
observe more stable and enduring price effects of volume
shocks (as exhibited in the lagged terms of the return-
volume relation) consistent with information effects.
Conclusion
This paper investigated the effect of information shocks on
price adjustment for 21 major global market indices (cov-
ering the 16 largest financial markets across the world),
using quantile regression methodology. The results show
that the arrival of information has a persistent effect on
returns. These information effects are most pronounced
when the intensity of the information signal is high (tails of
the return distribution). The arrival of information (posi-
tive and negative) leads to a contemporaneous and causal
relation of volume with return. Furthermore, the transmis-
sion of positive and negative news shocks has opposite
and contrasting implications for the return-volume rela-
tion. This macroeconomic information is revealed to mar-
ket participants in an autocorrelated piecemeal fashion.
The market participants absorb this information within
a day and become uniformly informed, leading to better
market quality and lower volatility levels. Overall, the
evidence is consistent with the MDH and information
asymmetry hypothesis.
The magnitude of the effect of information arrival on
the sell-side (negative tails of return distribution) is par-
ticularly muted for Korea, Taiwan, China and Hong Kong.
This may be caused by the short-sale restrictions that hinder
the trading activity on the sell-side and affect the transmis-
sion of negative news. Future works may examine this
aspect in more detail to provide deeper insights. Moreover,
the evidence from this study suggests that macroeconomic
information is absorbed over extremely short horizons
within a day. It would be interesting to examine the effect
of information arrival on return–volume–volatility relation
over intraday horizons across conditional quantiles, as the
SIAH hypothesis may also play an important role.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect
to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research,
authorship, and/or publication of this article.
ORCID iD
Abhinava Tripathi   https://orcid.org/0000-0002-6787-9780
18 IIM Kozhikode Society & Management Review 10(1)
Notes
1. The quantile approach to estimation is data intensive and
works efficiently when large number of data points are
employed, as in the present case (Koenker & Bassett Jr, 1978;
Koenker & Hallock, 2001).
2. To test the robustness of results, we also employ a time-
detrended measure of log volume (Gallant, Rossi, & Tauchen,
1992). The results, not reported here, are qualitatively similar.
However, the time-series properties of this volume measure
are less desirable.
3. The implementation of the GARCH model in ‘R’ is offered
by ‘rugarch’ package. We compared Standard-GARCH (1,1),
EGARCH (1,1), and GJR-GARCH (1,1) models. The infor-
mation criteria (Akaike, Bayes, Shibata, and Hann-Quinn)
consistently indicate that EGARCH model offers the best-fit.
These results, not shown here for brevity, can be provided
upon request.
4. The results are robust to one, two, three, four and higher
lagged returns.
5. The nonlinear nature of this relationship has been widely
documented (Badshah, 2013; Baur, Dimpfl, & Jung, 2012;
Chuang, Kuan, & Lin, 2009).
6. Our results remain qualitatively similar on exclusion of 0.5%
observations from the top and bottom quantiles, indicating
the robustness of the quantile regression methodology.
7. The goodness of fit measure in quantile regression frame-
work is provided by the ‘goodfit’ function in the package
‘WRTDStidal’. The measure builds on the framework of
Koenker & Machado (1999). In nature, this function is similar
to the conventional R2. measure from regression. The statistic
is calculated as one minus the ratio between the appropriately
weighted sum of absolute errors (deviations) from the condi-
tional model and that from the unconditional model.
8. The return volume relation in the lower quantiles is not
significantly negative for the markets of Korea and Taiwan.
Literature suggests that these markets have witnessed some
of the most stringent and long-standing short-sale restrictions
that have precluded the incorporation of negative news in
prices (Beber & Pagano, 2013; Bohl, Essid, & Siklos, 2012;
Bohl, Klein, & Siklos, 2014; Lee, 2017). Similarly, for China
and Hong-Kong the relation is less pronounced for lower
quantiles, indicating the effect of short-sale restrictions
(Chan Kot, & Yang, 2010; Chang et al., 2007).
9. Here, the return series is modeled using AR(4)/EGARCH(1,1)
model to obtain the conditional volatility. In an earlier version
of this study, we employed return-squares as the proxy of
volatility. Those estimates of the volatility were vitiated by
the GARCH effects and offered spurious results. We thank
the anonymous reviewer for this important suggestion.
References
Andersen, T. G. (1996). Return volatility and trading volume: An
information flow interpretation of stochastic volatility. The
Journal of Finance, 51(1), 169–204.
Badshah, I. U. (2013). Quantile regression analysis of the asym-
metric return-volatility relation. Journal of Futures Markets,
33(3), 235–265.
Baker, M., & Stein, J. C. (2004). Market liquidity as a sentiment
indicator. Journal of Financial Markets, 7(3), 271–299.
Baker, M., & Wurgler, J. (2006). Investor sentiment and the
cross-section of stock returns. The Journal of Finance, 61(4),
1645–1680.
Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor
sentiment. Journal of Financial Economics, 49(3), 307–343.
https://doi.org/10.1016/S0304-405X(98)00027-0
Baruník, J., Kočenda, E., & Vácha, L. (2016). Asymmetric con-
nectedness on the U.S. stock market: Bad and good volatility
spillovers. Journal of Financial Markets, 27, 55–78. https://
doi.org/10.1016/j.finmar.2015.09.003
Baur, D. G., Dimpfl, T., & Jung, R. C. (2012). Stock return
autocorrelations revisited: A quantile regression approach.
Journal of Empirical Finance, 19(2), 254–265. https://doi.
org/10.1016/j.jempfin.2011.12.002
Beber, A., & Pagano, M. (2013). Short-selling bans around
the world: Evidence from the 2007–09 crisis. The Journal
of Finance, 68(1), 343–381. https://doi.org/10.1111/j.1540-
6261.2012.01802.x
Bellemare, C., Krause, M., Kröger, S., & Zhang, C. (2005).
Myopic loss aversion: Information feedback vs. investment
flexibility. Economics Letters, 87(3), 319–324.
BenSaïda, A. (2019). Good and bad volatility spillovers: An
asymmetric connectedness. Journal of Financial Markets, 43,
78–95. https://doi.org/10.1016/j.finmar.2018.12.005
Bloomfield, R., O’hara, M., & Saar, G. (2015). Hidden liquidity:
Some new light on dark trading. The Journal of Finance,
70(5), 2227–2274.
Bohl, M. T., Essid, B., & Siklos, P. L. (2012). Do short selling
restrictions destabilize stock markets? Lessons from Taiwan.
The Quarterly Review of Economics and Finance, 52(2),
198–206.
Bohl, M. T., Klein, A. C., & Siklos, P. L. (2014). Short-selling
bans and institutional investors’ herding behaviour: Evidence
from the global financial crisis. International Review of
Financial Analysis, 33, 262–269. https://doi.org/10.1016/j.
irfa.2014.03.004
Bondt, W. F., & Thaler, R. (1985). Does the stock market
overreact? The Journal of Finance, 40(3), 793–805.
Campbell, J. Y., Grossman, S. J., & Wang, J. (1993). Trading
volume and serial correlation in stock returns. The Quarterly
Journal of Economics, 108(4), 905–939.
Chan, K., Kot, H. W., & Yang, Z. (2010). Effects of short-sale
constraints on stock prices and trading activity: Evidence
from Hong Kong and Mainland China. Working Paper. Hong
Kong University of Science & Technology, Hong Kong
Baptist University and Tsinghua University. http://dx.doi.
org/10.2139/ssrn.1572067
Chang, E. C., Cheng, J. W., & Yu, Y. (2007). Short-sales con-
straints and price discovery: Evidence from the Hong Kong
market. The Journal of Finance, 62(5), 2097–2121.
Chen, G., Firth, M., & Rui, O. M. (2001). The dynamic relation
between stock returns, trading volume, and volatility.
Financial Review, 36(3), 153–174.
Chen, S.-S. (2012). Revisiting the empirical linkages between
stock returns and trading volume. Journal of Banking &
Finance, 36(6), 1781–1788.
Chordia, T., Roll, R., & Subrahmanyam, A. (2000). Commonality
in liquidity. Journal of Financial Economics, 56(1), 3–28.
Tripathi 19
Chordia, T., Roll, R., & Subrahmanyam, A. (2005). Evidence on
the speed of convergence to market efficiency. Journal of
Financial Economics, 76(2), 271–292.
———. (2008). Liquidity and market efficiency. Journal of
Financial Economics, 87(2), 249–268.
Chordia, T., Subrahmanyam, A., & Anshuman, V. R. (2001).
Trading activity and expected stock returns. Journal of
Financial Economics, 59(1), 3–32.
Chuang, C.-C., Kuan, C.-M., & Lin, H.-Y. (2009). Causality
in quantiles and dynamic stock return–volume relations.
Journal of Banking & Finance, 33(7), 1351–1360. https://doi.
org/10.1016/j.jbankfin.2009.02.013
Clark, P. K. (1973). A subordinated stochastic process model with
finite variance for speculative prices. Econometrica: Journal
of the Econometric Society, 41(1), 135–155.
Clements, A. E., Hurn, A. S., & Volkov, V. V. (2015). Volatility
transmission in global financial markets. Journal of Empirical
Finance, 32, 3–18.
Copeland, T. E. (1976). A model of asset trading under the
assumption of sequential information arrival. The Journal of
Finance, 31(4), 1149–1168.
Copeland, T. E., & Galai, D. (1983). Information effects on the
bid-ask spread. The Journal of Finance, 38(5), 1457–1469.
Darrat, A. F., Rahman, S., & Zhong, M. (2003). Intraday trading
volume and return volatility of the DJIA stocks: A note.
Journal of Banking & Finance, 27(10), 2035–2043.
Dimmock, S. G., & Kouwenberg, R. (2010). Loss-aversion and
household portfolio choice. Journal of Empirical Finance,
17(3), 441–459.
Epps, T. W., & Epps, M. L. (1976). The stochastic dependence of
security price changes and transaction volumes: Implications
for the mixture-of-distributions hypothesis. Econometrica:
Journal of the Econometric Society, 44(2), 305–321.
Fabozzi, F. J., Fung, C.-Y., Lam, K., & Wong, W.-K. (2013).
Market overreaction and underreaction: Tests of the directional
and magnitude effects. Applied Financial Economics, 23(18),
1469–1482. https://doi.org/10.1080/09603107.2013.829200
Fama, E. F. (1970). Efficient capital markets: A review of theory
and empirical work. The Journal of Finance, 25(2), 383–417.
———. (1991). Efficient capital markets: II. The Journal of
Finance, 46(5), 1575–1617.
———. (1998). Market efficiency, long-term returns, and
behavioral finance. Journal of Financial Economics, 49(3),
283–306.
Foster, F. D., & Viswanathan, S. (1993). Variations in trading
volume, return volatility, and trading costs: Evidence on
recent price formation models. The Journal of Finance,
48(1), 187–211.
French, K. R., Schwert, G. W., & Stambaugh, R. F. (1987).
Expected stock returns and volatility. Journal of Financial
Economics, 19(1), 3–29.
Gallant, A. R., Rossi, P. E., & Tauchen, G. (1992). Stock prices
and volume. The Review of Financial Studies, 5(2), 199–242.
Jennings, R. H., Starks, L. T., & Fellingham, J. C. (1981). An
equilibrium model of asset trading with sequential information
arrival. The Journal of Finance, 36(1), 143–161.
Karpoff, J. M. (1987). The relation between price changes
and trading volume: A survey. Journal of Financial and
Quantitative Analysis, 22(1), 109–126.
Kim, S. T., & Stoll, H. R. (2014). Are trading imbalances indicative
of private information? Journal of Financial Markets, 20,
151–174.
Kocagil, A. E., & Shachmurove, Y. (1998). Return-volume
dynamics in futures markets. The Journal of Futures Markets
(1986-1998), 18(4), 399–426.
Koenker, R. (2004). Quantile regression for longitudinal data.
Journal of Multivariate Analysis, 91(1), 74–89.
———. (2013). quantreg: Quantile regression. R package version
5.05. Vienna: R Foundation for Statistical Computing. Http://
CRAN. R-Project. Org/Package= Quantreg
Koenker, R., & Bassett Jr, G. (1978). Regression quantiles.
Econometrica: Journal of the Econometric Society, 46(1),
33–50.
Koenker, R., & Hallock, K. F. (2001). Quantile regression.
Journal of Economic Perspectives, 15(4), 143–156.
Koenker, R., & Machado, J. A. (1999). Goodness of fit and
related inference processes for quantile regression. Journal
of the American Statistical Association, 94(448), 1296–1310.
Koenker, R., & Xiao, Z. (2006). Quantile autoregression. Journal
of the American Statistical Association, 101(475), 980–990.
https://doi.org/10.1198/016214506000000672
Lamoureux, C. G., & Lastrapes, W. D. (1994). Endogenous
trading volume and momentum in stock-return volatility.
Journal of Business & Economic Statistics, 12(2), 253–260.
Lee, S. (2017). Does short sale restriction lower price efficiency
when substitutes exist? Evidence from the Korean market.
Economics Letters, 158, 77–79. https://doi.org/10.1016/j.
econlet.2017.06.037
Li, J., & Wu, C. (2006). Daily return volatility, bid-ask spreads,
and information flow: Analyzing the information content of
volume. The Journal of Business, 79(5), 2697–2739.
Llorente, G., Michaely, R., Saar, G., & Wang, J. (2002). Dynamic
volume-return relation of individual stocks. The Review of
Financial Studies, 15(4), 1005–1047.
Malinova, K., & Park, A. (2010). Trading volume in dealer
markets. Journal of Financial and Quantitative Analysis,
45(6), 1447–1484.
O’Hara, M. (2015). High frequency market microstructure.
Journal of Financial Economics, 116(2), 257–270.
Schwert, G. W. (1989). Why does stock market volatility change
over time? The Journal of Finance, 44(5), 1115–1153.
Stoll, H. R. (2000). Presidential address: Friction. The Journal of
Finance, 55(4), 1479–1514.
Suominen, M. (2001). Trading volume and information revela-
tion in stock market. Journal of Financial and Quantitative
Analysis, 36(4), 545–565.
Tauchen, G. E., & Pitts, M. (1983). The price variability-volume
relationship on speculative markets. Econometrica: Journal
of the Econometric Society, 51(2), 485–505.
Thaler, R. H., Tversky, A., Kahneman, D., & Schwartz, A.
(1997). The effect of myopia and loss aversion on risk taking:
An experimental test. The Quarterly Journal of Economics,
112(2), 647–661.