Stock returns versus trading volume: is the correspondence more general?

TL;DR

This study investigates the relationship between stock returns and trading volume using high-frequency data from the Polish market, revealing power-law distributions and a square-root impact of trades, similar to mature markets.

Contribution

It provides a detailed empirical analysis of return-volume relationships and confirms the universality of certain market properties across different markets.

Findings

Return and volume distributions follow power-law functions.

Scaling exponents of returns and volumes are systematically related.

Trade impact scales with the square root of volume.

Abstract

This paper presents a quantitative analysis of the relationship between the stock market returns and corresponding trading volumes using high- frequency data from the Polish stock market. First, for stocks that were traded for suffciently long period of time, we study the return and volume distributions and identify their consistency with the power-law functions. We find that, for majority of stocks, the scaling exponents of both distri- butions are systematically related by about a factor of 2 with the ones for the returns being larger. Second, we study the empirical price impact of trades of a given volume and find that this impact can be well described by a square-root dependence: r(V) V^(1/2). We conclude that the prop- erties of data from the Polish market resemble those reported in literature concerning certain mature markets.