A Study on the Information Arrival and volatility in the KOREA Stock and Futures market.
Authors:   Asia-Europe Perspective Association, Jang Seung-Wook 
Published: June 2018

This study examines the contemporaneous correlation as well as the lead-lag relation between the trading volume and the return volatility. And this paper investigates the return volatility-volume relationship using a TGARCH model based on the sequential information arrival hypothesis which assumes that the market reflects the new information sequentially. Also, the model considers the volumes of t and t-1.
The sample of this study consists of the Korea Stock Exchange(KSE). We measured the return volatility by the exponential generalized autoregressive conditional heteroscedasticity method.
Movements in stock prices (returns) and trading volume are influenced by the flow of new information into the market. Prior research is not clear on the nature of the relationship between return volatility and trading volume. This paper revisits this debate using intraday data and a more refined measure of return volatility. I study both the contemporaneous and the causal relations between return volatility and trading volume for KOSPI, KOSPI50, KOSPI100, KOSPI200, LARGE, MEDIUM and Small Index.
There are two theoretical explanations for the observed volume-volatility relations of stocks. These are the sequential information arrival hypothesis (SIAH) of Copeland (1976), Jennings et al. (1981), and Smirlock and Starks (1985); and the mixture of distribution hypothesis (MDH) advanced by Clark (1973),Harris(1987) and Andersen (1996). SIAH assumes that traders receive new information in a sequential,random fashion. From an initial position of equilibrium where all traders possess the same set of information,new information arrives in the market and traders revise their expectations accordingly. However, traders do not receive the information signals simultaneously. Reactions of different traders to information are parts of a series of incomplete equilibria. Once all traders have reacted to the information signal, a final equilibrium is reached. The sequential reaction to information in the SIAH suggests that lagged values of volatility may have the ability to predict current trading volume, and vice versa.
On the other hand, the MDH hypothesis implies an alternative volatility-volume nexus, in which the relation is critically dependent upon the rate of information flow into the market. The model assumes that the joint distribution of volume and volatility is bivariate normal conditional upon the arrival of information. All traders simultaneously receive the new price signals. As such, the shift to a new equilibrium is immediate and there will be no intermediate partial equilibrium. This is contrary to the SIAH, which assumes that there are intermediate equilibria en route to the final equilibrium. Thus, under the MDH,there should be no information content in past volatility data that can be used to forecast volume (or vice versa) since these variables contemporaneously change in response to the arrival of new information.
I use daily data to investigate the volume-volatility relation. and TGARCH model to measure return volatility. The proposed TGARCH model accounts for the time varying volatility process with asymmetric responses to both positive and negative price changes.
I examine the interdependence of the return volatility and the volume KOREA stock market for daily data from june January, 1, 2002 to December, 30, 2010. We employ Granger causality, impulse response function based on VAR model as well as variance decomposition after unit root tests and cointegration test.