The empirical relationship between stock returns volatility and trading volume: evidence on the Tunis stock market

The purpose of this paper is to study the relationship between stock returns volatility and trading volume for the main 20 Tunisian stocks listed in the Tunis stock market. We test the effect of trading volume on the persistence of the time-varying conditional volatility of returns. Our empirical results show that in the majority of cases volatility persistence vanish when trading volume is included as an explanatory variable in the conditional variance equation. It implies that the mixture of distribution hypothesis (MDH) explain the autoregressive conditional heteroskedasticity (ARCH) phenomenon. In addition, we use tow different proxies for information arrival to the market, intra-day volatility and overnight indicators. We found that these are good proxies for information arrival and are important in explaining GARCH effect in stock returns.