Emperical Investigation of Relationship Between Stock Return, Trading Volume and Volatility: Evidence From Indian Stock Market

EMPERICAL INVESTIGATION OF RELATIONSHIP BETWEEN
STOCK RETURN, TRADING VOLUME AND VOLATILITY:

EVIDENCE FROM INDIAN STOCK MARKET
A PROJECT REPORT
Submitted in partial fulfilment for the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION
By
MACHA HARISH
(089518)
SCHOOL OF MANAGEMENT
NATIONAL INSTITUTE OF TECHNOLOGY
(An Institute Of National Importance)
WARANGAL
ANDHRA PRADESH, 506021
APRIL-JUNE, 2010
BONAFIDE CERTIFICATE
Certified that the Project report titled Empirical Investigation Of Relationship Between
Stock Return, Trading Volume And Volatility: Evidence From Indian Stock Market is
the bonafide work of Mr. MACHA HARISH, 089518 who carried out the work under my
supervision. Certified further that to the best of my knowledge the work reported herein does not
form part of any other project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other candidate.
Dr. K.PADMA Dr. C. SURYA PRAKASH RAO

ASSOCIATE PROFESSOR HEAD, S. O. M
S. O. M, N. I. T WARANGAL. N. I. T WARANGAL
Signature of Supervisor Signature of HOD

DECLARATION
I hereby declare that the project entitled “Empirical Investigation Of Relationship
Between Stock Return, Trading Volume And Volatility: Evidence From

Indian Stock Market” submitted for the M.B.A. Degree is my original work and the
dissertation has not formed the basis for the award of any degree, associate ship, fellowship
or any other similar titles.
Place:
Date:
MACHA HARISH
INDIABULLS SECURITIES LIMITED | 3

ABSTRACT
This paper empirically examines the relationship between returns, volatility and trading
volume for 50 Indian stocks from NSE NIFTY index. Two measures of trading volume
namely number of shares traded and value of shares traded are used. The correlations
between the two measures of daily trading volume are examined using Pearson’s
correlation .Asymmetric relation between level of trading volume and returns is examined
using linear regression. In case of volatility, the asymmetric relation is examined between
unconditional volatility and volume using linear regression. The evidence for positive
asymmetric relation between returns and volume as well as unconditional volatility and
volume is found. We also find that the level of Return is dependent on the direction of daily
volume change in case of 80% of the stocks in the sample when we take value of shares as
measure for daily volume so it is better to use share value as proxy for predicting the stock
return.

CONTENTS
SL NO. NAME OF THE CONTENT PAGE NO.

01 Chapter 1: Introduction 1-4
Introduction 1-2
Scope of the study 3
Statement of the problem 3
Objectives of the study 3
Research Methodology 4
02 Chapter 2: Profiles 5-16
Industry profile 5-12
Company profile 13-16
03 Chapter 3: Review of Literature 17-25
Conceptual and theoretical review 17-22
Research review 23-25
04 Chapter 4: Data analysis & Interpretation 26-42
Analysis 1 26-32
Analysis 2 33-42
05 Chapter 5: Conclusion 43-47
Results and Discussions 45
Directions for further research 46
Limitation 46
Conclusion 46
Suggestion 47
06 Bibliography 48-49

LIST OF TABLES
S.NO Table Name of the Item

1 Table 4.1.1 List Of Constituents Of S&P CNX Nifty
2 Table 4.1.2 Sample Summary Statistics Of Return
Year Wise Description Of Average Daily Measurements Of Trading
3 Table 4.1.3
Volume Of Nifty Stocks
4 Table 4.1.4 Sample Summary Statistics Of Value, Volume
5 Table 4.2.1 Pearson Correlation Between Measures Of Daily Trading Volume
Relationship Between Standardized Trading Volume (Number Of Shares)
6 Table 4.2.2
And Returns
Relationship Between Standardized Trading Volume (Value Of Shares)
7 Table 4.2.3
And Returns.
Relationship between Standardized Trading Volume (Volume of shares)
8 Table 4.2.4
and Unconditional Volatility
Relationship between Standardized Trading Volume (Value of shares) and
9 Table 4.2.5
Unconditional Volatility

CHAPTER-I
INTRODUCTION

1.1 INTRODUCTION
The emergence of informational efficient financial markets is an important facet of

any country’s economic modernization, with far-reaching implication for its macroeconomic
stability and performance (Stefano, B. set al., (2006)). Thus, it is in the interest of the
economy to achieve efficiency in the dynamics of the stock markets. Return and volume are
two major pillars, around which entire stock market revolves. While return can be interpreted
as the evaluation of new information, volume is an indicator to which the investors disagree
about this information. Moreover, it is observed from the prior literature1 that stock prices are
noisy which can’t convey all available information to market dynamics of stock prices and
trading volume. Therefore, studying the joint dynamics of stock prices and trading volume is
essential to improve the understanding of the microstructure of stock markets (Mestal et al.,
(2003)).
Return-volume relationships are of common interest as they may unearth

dependencies that can form the basis of profitable trading strategies, and this has implications
for market efficiency (Chen, Firth and Yu (2004)). Karpoff (1987) cited four reasons for
discussing price-volume relation.
1. First, it provides insight into the structure of financial markets, such as the rate of
information flow to the market, how the information is disseminated, the extent to
which market prices convey the information, and the existence of short sales
constraints.
2. Second, the relationship between price and volume can be used to examine the
usefulness of technical analysis. For example, Murphy (1985) and DeMark (1994)
emphasized that both volume and price incorporate valuable information. A technical
analyst gives less significance to a price increase with low trading volume than to a
similar price increase with substantial volume.
3. Third, some researchers, such as Peck (1981), Garcia et al., (1986) and Weiner (2002)
have investigated the role of speculation to price volatility (stabilizing or
destabilizing), where speculation is closely related to trading volume.
4. Finally, as Cornell (1981) pointed out, the volume-price variability relationship may
have important implications for fashioning new contracts. A positive volume-price

variability relationship means that a new futures contract will be successful only to
the extent that there is enough price uncertainty associated with the underlying asset.
Thus, to improve the understanding of the microstructure of stock market, the
relationship between return, volume and volatility has received substantial attention in
the market microstructure for a number of years. In addition, the return-volume
relationship sheds light on the efficiency of stock markets.
Financial literature has documented the various types of the return-volume
relationship especially in US stock markets (see survey in karpoff (1987)). By contrast,
relatively little attention has been devoted to this relationship in India. Some researchers have
made attempts to evaluate return-volume relationship in Indian stock market but these are
elementary efforts and moreover, the studies have failed to take the phenomena of volatility
persistence/volatility clustering in return-volume relationship. As cited in Huson Joher et al.,
(2005), financial time series behave in such a way that does not conform to the normality
distribution.
Given the mixed results between price and trading volume especially in emerging
markets context, some additional results from other emerging financial markets are needed to
better understand the price-volume relationship. Very few studies have examined the price-
volume relationship in Indian market. This paper represents one such attempt to investigate
returns, volatility and trading volume relationship in Indian Stock market.

1.2 SCOPE OF THE STUDY
• My duration of study is from January 2000 to December 2009 since we can observe
major fluctuations in the stock market during this period.
• Stock market is a huge area of research which can be affected by various external
factors but my focus is only on Indian stock market especially on the NIFTY 50.
1.3 STATEMENT OF THE PROBLEM
In the stock market predicting the return and volatility of stocks is a major concern for
any investor, so in order to predict the return and volatility in this study we try to find out the
asymmetric relation between trading volume, return and volatility. By finding out their
relationship we can predict the future returns and volatility based on daily trading volume.
This is also very much helpful for the technical analysts because they give less significance to
a price increase with low trading volume than to a similar price increase with substantial
increase in the volume. And this relation gives an easy accessible tool for the retail investors
to predict the stock returns.
1.4 OBJECTIVES OF THE STUDY
• To determine the relation between return and the daily trading volumes.
• To determine the relation between the price volatility and trading volume.
• To understand the rate of information flow in to the market, how the information is
disseminated, the extent to which market prices convey the information, and the
existence of short sales constraints.
• To examine the usefulness of the technical analysis because a technical analyst gives
less significance to a price increase with low trading volume than to a similar price
increase with substantial volume.

• To provide good investment advices to the institutional investors and retail investors
based on return and volume relationship.
1.5 RESEARCH METHODOLOGY
In this study our data set consists of all the stocks of S&P CNX Nifty Index. S&P CNX Nifty
is a well diversified 50 stock index accounting for 21 sectors of the Indian economy. Table 1
provides the list of these companies, industry type and the period considered in the analysis.
Data has been collected for the period of 1st January 2000 to 31st December 2009. For
companies that were listed after 1st January 2000, the data has been taken from the listing
date to 31st December 2009. The data set consists of 1,10,000 data points of adjusted daily
closing prices and three different measures of daily volume (number of transactions, number
of shares traded and total value of shares). The daily adjusted closing prices have been used
for estimating daily returns.
The percentage return of the stock is defined as
Rt = ln *100
Where, Rt is logarithmic daily percentage return at time t and Pt–1 and Pt are daily price of
an asset on two successive days t-1 and t respectively
Data : Secondary data
Number of observation points : 1,10,000
Statistical tool : SPSS
Analysis : Pearson’s correlation, linear regression, Descriptive statistics

CHAPTER-II
PROFILES

2.1 INDUSTRY PROFILE
Stock Market
A stock market is a public market for the trading of company stock and derivatives at
an agreed price; these are securities listed on a stock exchange as well as those only traded
privately.
The stock market is one of the most important sources for companies to raise money.
This allows businesses to be publicly traded, or raise additional capital for expansion by
selling shares of ownership of the company in a public market. The liquidity that an exchange
provides affords investors the ability to quickly and easily sell securities. This is an attractive
feature of investing in stocks, compared to other less liquid investments such as real estate.
The two important exchanges in india are the BSE and NSE.
Evolution
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meagre and obscure. The East
India Company was the dominant institution in those days and business in its loan securities
used to be transacted towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took
place in Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers increased into
60.
In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased

to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous
slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be
sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in
1874, found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in Bombay,
the "Native Share and Stock Brokers' Association" (which is alternatively known as " The
Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it
was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Trading Pattern of the Indian Stock Market
Trading in Indian stock exchanges are limited to listed securities of public limited
companies. They are broadly divided into two categories, namely, specified securities
(forward list) and non-specified securities (cash list). Equity shares of dividend paying,
growth-oriented companies with a paid-up capital of at least Rs.50 million and a market
capitalization of at least Rs.100 million and having more than 20,000 shareholders are,
normally, put in the specified group and the balance in non-specified group.
Two types of transactions can be carried out on the Indian stock exchanges: (a) spot
delivery transactions "for delivery and payment within the time or on the date stipulated
when entering into the contract which shall not be more than 14 days following the date of
the contract" : and (b) forward transactions "delivery and payment can be extended by further
period of 14 days each so that the overall period does not exceed 90 days from the date of the
contract". The latter is permitted only in the case of specified shares. The brokers who carry
over the outstanding pay carry over charges (cantango or backwardation) which are usually
determined by the rates of interest prevailing.
A member broker in an Indian stock exchange can act as an agent, buy and sell
securities for his clients on a commission basis and also can act as a trader or dealer as a
principal, buy and sell securities on his own account and risk, in contrast with the practice

prevailing on New York and London Stock Exchanges, where a member can act as a jobber
or a broker only.
The nature of trading on Indian Stock Exchanges are that of age old conventional
style of face-to-face trading with bids and offers being made by open outcry. However, there
is a great amount of effort to modernize the Indian stock exchanges in the very recent times.
Securities Market
The securities market has two interdependent and inseparable segments, the new
issues (primary market) and the stock (secondary) market.
Primary Market
The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some obligation. They
may issue the securities at face value, or at a discount/premium and these securities may take
a variety of forms such as equity, debt etc. They may issue the securities in domestic market
and/or international market. The primary market issuance is done either through public issues
or private placement. A public issue does not limit any entity in investing while in private
placement, the issuance is done to select people. In terms of the Companies Act, 1956, an
issue becomes public if it results in allotment to more than 50 persons. This means an issue
resulting in allotment to less than 50 persons is private placement. There are two major types
of issuers who issue securities. The corporate entities issue mainly debt and equity
instruments (shares, debentures, etc.), while the governments (central and state governments)
issue debt securities (dated securities, treasury bills). The price signals, which subsume all
information about the issuer and his business including associated risk, generated in the
secondary market, help the primary market in allocation of funds.

Secondary Market
The segment of secondary market is a place where scripts are traded to provide
liquidity to scripts which were issued in the primary market. Thus the growth of the
secondary market is very much dependent upon the primary market. The more the number of
companies enters the primary market the greater is the volume trade at the secondary market.
The trading activities in the secondary market is done through the recognized stock exchange
i.e. ICSE (inter connected stock exchange of India) is yet to make its beginning shortly.
Mainly the secondary market operations involved in buying and selling of securities on the
stock exchange through its members the companies hitting the primary market are mandatory
including a regional stock exchange. The following intermediaries are involved in the
secondary market.
1. Members/broker of a stock exchange i.e., for buying and selling of scripts.
2. Portfolio Manager.
3. Investment Manager.
4. Transfer Agent.
SEBI has issued several guidelines and regulations on secondary market, conduct and
registration of brokers, portfolio managers. SEBI has taken several steps to control and
regulate the secondary market in India which includes expansion of stock
exchange centers and their integration, improvement in trading system and settlement
procedures. Registration of brokers, sub-brokers prohibition of insider trading, transparency
in trading activities, eligibility norms of membership, capital adequacy
norms, margins. Further mutual funds have also been brought under the purview of the SEBI
Recent Developments In Secondary Market
1. SEBI has issued Capital Adequacy Norms for brokers consisting of base Minimum
Capital, Additional capital related to volume of business.
2. NSE was incorporated to compete with other stock exchanges which went fully
automated and available to a common investor by means of terminals spreading all
over the country

3. Circuit Breakers system was introduced at Mumbai stock exchange and other
exchanges to stop trading in particular scrip fluctuating beyond 8% in some
scripts for the previous day’s closing prices.
4. OTCEI was permitted to trade in unlisted scripts, hut listed on Mumbai stock
exchange along with debentures.
5. Apart from this, Odd Lot trading sessions was separated to ensure trading in odd lots
conveniently. Brokers were advised to keep separate accounts for clients and not to
touch the funds of clientele sale realizations.
6. Forward trading was banned from 15th march 1994.
7. Capital gain Tax Rules were liberalized.
8. Compulsory Market Making concept was introduced.
9. Jumbo share concept of larger denomination share certificates was introduced with a
view to mitigate the problems of custodian of Indian and Foreign Financial
Institutions.
10. The systems of corporate members were introduced in all exchanges and the
Exemption of capital gain was extended till 3l December 1998.
11. The Demat system was started i.e., trading the scripts in the dematerialized form for
the purpose of avoiding Bad deliveries, Delay in transfers, Reduction of transfer
expenses, Reducing settlement delays and reducing market lot share to 1.
12. Rolling settlement was introduced in some shares for the purpose of encouraging the
buying and selling shares only by the genuine buyers or investors and to avoid excess
speculation.
National Stock Exchange (NSE)
With the liberalization of the Indian economy, it was found inevitable to lift the
Indian stock market trading system on par with the international standards. On the basis of
the recommendations of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.
Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and
(b) Capital market.
Wholesale debt market operations are similar to money market operations -
institutions and corporate bodies enter into high value transactions in financial instruments
such as government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.
There are two kinds of players in NSE:

(a) Trading members and
(b) Participants.
Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players like
banks who take direct settlement responsibility.
Trading at NSE takes place through a fully automated screen-based trading
mechanism which adopts the principle of an order-driven market. Trading members can stay
at their offices and execute the trading, since they are linked through a communication
network. The prices at which the buyer and seller are willing to transact will appear on the
screen. When the prices match the transaction will be completed and a confirmation slip will
be printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as follows:
• NSE brings an integrated stock market trading network across the nation.
• Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.
• Delays in communication, late payments and the malpractice’s prevailing in the
traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.
Unless stock markets provide professionalised service, small investors and foreign
investors will not be interested in capital market operations. And capital market being one of
the major source of long-term finance for industrial projects, India cannot afford to damage
the capital market path. In this regard NSE gains vital importance in the Indian capital market
system.
NSE-50 INDEX (NIFTY)
This Index is built by India Services Product Ltd (IISL) and Credit Rating
Information Services of India Ltd (CRISIL).
NSE-50 Index was introduced on April 22, 1996 to serve as an appropriate index for
the new segment of futures and options. “Nifty” means National Index for Fifty Stocks. The
selection criteria are the market capitalization and liquidity. The market capitalization of the
companies should be Rs. 5 billion or more.
The company scrip should be traded for 85% of the trading days at an impact cost less
than 1.5%. The base period for the Nifty index is the closing prices on November 31st1995.
The base period is selected to commensurate the completion of one — year operation
of NSE in the stock market. The base value of index is at 1000 with the base capital of
Rs.2.06 of trillion.
The NSE Midcap Index or the Junior Nifty comprises 50 stocks that represents
21board industry groups and will provide proper representation of the madcap segment of
greater than Rs.200 crores and should have traded 85% of trading days at an impact cost of
less than 2.5%.
The base period for the index is Nov 4th, 1996. This signifies two years for
completion of operations of the capital market segment of the operations. The base value of
the index has been set at 1000.

2.2 COMPANY PROFILE
Indiabulls Group is one of the top business house in the country with business
interests in Real Estate, Infrastructure, Financial Services, Securities, Retail, Multiplex and
Power Sectors.Indiabulls Group companies are listed in Indian and overseas financial
markets. The net worth of the Group exceeds USD 2 billion.
Indiabulls Group has four separately listed companies with

subsidiaries which contributed in enhancing scope and profile of the business

Indiabulls Securities Limited
Indiabulls Securities Limited was originally incorporated in India on June 9 1995

under the Companies Act as a private limited company as GPF Securities Private Limited
under certificate of incorporation bearing number 55-69631. The name of the Company was
changed to Orbis Securities Private Limited on December 15 1995. The Company was
subsequently converted into a public limited company and its name was further changed to
Orbis Securities Limited on January 5 2004.The name of the Company was again changed to
Indiabulls Securities Limited on February 16 2004.
Indiabulls Securities Limited is the jewel in the crown of Indiabulls group.

The products and services offered include securities, credit services, demat account for share
trading, mutual fund news, commodity and review along with technical analysis of the
market.
Indiabulls also provide commodity brokerage services under Indiabulls Commodities Limited
(ICL). It deals in research work and formation of reports on agri-commodites and metals. ICL
has one of the largest retail branch networks in the country.
PRODUCTS
• Power indiabulls( PIB)

• Indiabulls Signature Account

• Depository Services
• NRI Trading
• IPO Online
• Equity Analysis
• Currency Derivatives
Equities and Derivatives
• Offers purchase and sale of securities (stock, bonds, debentures etc.)

• Broker assisted trade execution
• Automated online investing
• Access to all IPO's
Equity Analysis
• Helps to build ideal portfolio

• Satisfies need by rating stocks based on facts-based measures
• Free of cost for all securities clients
Depository Services
• Depository participant with NSDL and CDSL.

• Helps in trading and settlement of dematerialized shares
• Performs clearing services for all securities transactions
• Offers platform to execute trade and settle transaction
Organizational Structure

Settlement Charges
• Account opening charges : 900 Rs ( NON-REFUNDABLE)

• No Annual Maintenance Charges ( AMC )
• SETTLEMENT CHARGES:
INTRADAY DELIVERY
Charges : 3 paisa for 100 Rs 35 paisa for 100 Rs
Exposure: 6-12 times 2 - 4 times
Milestones
• Developed one of the first Internet trading platforms in India
• Amongst the first to develop in-house real-time CTCL (computer to computer
link) with NSE
• Introduction of integrated accounts with automatic gateways to client bank
accounts
• Development of Products such as Power Indiabulls for high volume traders
• Indiabulls Signature Account for self-directed investors
• Indiabulls Group Professional Network for information and trading service
• Indiabulls Securities is the first and only brokerage house in India to be assigned
the highest rating BQ – 1 by CRISIL. Indiabulls Securities Ltd is listed on NSE,
BSE & Luxembourg stock exchange.

CHAPTER III
LITERATURE SURVEY
3.1 CONCEPTUAL AND THEORITICAL SURVEY

Pearson's Correlation
The correlation between two variables reflects the degree to which the variables are
related. The most common measure of correlation is the Pearson Product Moment Correlation
(called Pearson's correlation for short). When measured in a population the Pearson Product
Moment correlation is designated by the Greek letter rho (ρ). When computed in a sample, it
is designated by the letter "r" and is sometimes called "Pearson's r." Pearson's correlation
reflects the degree of linear relationship between two variables. It ranges from +1 to -1. A
correlation coefficient of +1 means that there is a perfect positive linear relationship between
variables. The scatter plot shown on this page depicts such a relationship. It is a positive
relationship because high scores on the X-axis are associated with high scores on the Y-axis.
A correlation coefficient of -1 means that there is a perfect negative linear relationship

between variables. The scatter plot shown below depicts a negative relationship. It is a
negative relationship because high scores on the X-axis are associated with low scores on the
Y-axis.
A correlation of 0 means there is no linear relationship between the two variables. The second
graph shows a Pearson correlation of 0.

The correlation coefficient r (also called Pearson's product moment correlation after Karl
Pearson) is calculated by
The correlation coefficient may take any value between -1.0 and +1.0.
Assumptions:
• linear relationship between x and y

• continuous random variables
• both variables must be normally distributed
• x and y must be independent of each other
Please note, that the equation above can be replaced by an equivalent formula which avoids
use the means and is therefore much faster to calculate:
The correlation coefficient stands in close relationship to linear regression. The square
of r is called the goodness of fit and denotes the portion of total variance explained by the

regression model.
Linear Regression
Linear regression analyzes the relationship between two variables, X and Y. For each subject
(or experimental unit), you know both X and Y and you want to find the best straight line
through the data. In some situations, the slope and/or intercept have a scientific meaning. In
other cases, you use the linear regression line as a standard curve to find new values of X
from Y, or Y from X.
The term "regression", like many statistical terms, is used in statistics quite differently
than it is used in other contexts. The method was first used to examine the relationship
between the heights of fathers and sons. The two were related, of course, but the slope is less
than 1.0. A tall father tended to have sons shorter than himself; a short father tended to have
sons taller than himself. The height of sons regressed to the mean. The term "regression" is
now used for many sorts of curve fitting.
Prism determines and graphs the best-fit linear regression line, optionally including a
95% confidence interval or 95% prediction interval bands. You may also force the line
through a particular point (usually the origin), calculate residuals, calculate a runs test, or
compare the slopes and intercepts of two or more regression lines.
In general, the goal of linear regression is to find the line that best predicts Y from X.
Linear regression does this by finding the line that minimizes the sum of the squares of the
vertical distances of the points from the line.
Note that linear regression does not test whether your data are linear (except via the
runs test). It assumes that your data are linear, and finds the slope and intercept that make a
straight line best fit your data.
Minimizing sum-of-squares
The goal of linear regression is to adjust the values of slope and intercept to find the
line that best predicts Y from X. More precisely, the goal of regression is to minimize the
sum of the squares of the vertical distances of the points from the line. Why minimize the
sum of the squares of the distances? Why not simply minimize the sum of the actual
distances?
If the random scatter follows a Gaussian distribution, it is far more likely to have two
medium size deviations (say 5 units each) than to have one small deviation (1 unit) and one

large (9 units). A procedure that minimized the sum of the absolute value of the distances
would have no preference over a line that was 5 units away from two points and one that was
1 unit away from one point and 9 units from another. The sum of the distances (more
precisely, the sum of the absolute value of the distances) is 10 units in each case. A procedure
that minimizes the sum of the squares of the distances prefers to be 5 units away from two
points (sum-of-squares = 50) rather than 1 unit away from one point and 9 units away from
another (sum-of-squares = 82). If the scatter is Gaussian (or nearly so), the line determined by
minimizing the sum-of-squares is most likely to be correct.
The calculations are shown in every statistics book, and are entirely standard.
Slope and intercept

Prism reports the best-fit values of the slope and intercept, along with their standard
errors and confidence intervals.
The slope quantifies the steepness of the line. It equals the change in Y for each unit
change in X. It is expressed in the units of the Y-axis divided by the units of the X-axis. If the
slope is positive, Y increases as X increases. If the slope is negative, Y decreases as X
increases.
The Y intercept is the Y value of the line when X equals zero. It defines the elevation of the
line.
The standard error values of the slope and intercept can be hard to interpret, but their
main purpose is to compute the 95% confidence intervals. If you accept the assumptions of
linear regression, there is a 95% chance that the 95% confidence interval of the slope contains
the true value of the slope, and that the 95% confidence interval for the intercept contains

the true value of the intercept.
r2, a measure of goodness-of-fit of linear regression
The value r2 is a fraction between 0.0 and 1.0, and has no units. An r2 value of 0.0
means that knowing X does not help you predict Y. There is no linear relationship between X
and Y, and the best-fit line is a horizontal line going through the mean of all Y values. When
r2 equals 1.0, all points lie exactly on a straight line with no scatter. Knowing X lets you
predict Y perfectly.
This figure demonstrates how Prism computes r2.
The left panel shows the best-fit linear regression line This lines minimizes the sum-
of-squares of the vertical distances of the points from the line. Those vertical distances are
also shown on the left panel of the figure. In this example, the sum of squares of those
distances (SSreg) equals 0.86. Its units are the units of the Y-axis squared. To use this value
as a measure of goodness-of-fit, you must compare it to something.
The right half of the figure shows the null hypothesis -- a horizontal line through the
mean of all the Y values. Goodness-of-fit of this model (SStot) is also calculated as the sum
of squares of the vertical distances of the points from the line, 4.907 in this example. The
ratio of the two sum-of-squares values compares the regression model with the null
hypothesis model. The equation to compute r2 is shown in the figure. In this example r2 is
0.8248. The regression model fits the data much better than the null hypothesis, so SSreg is

much smaller than SStot, and r2 is near 1.0. If the regression model were not much better
than the null hypothesis, r2 would be near zero.
You can think of r2 as the fraction of the total variance of Y that is "explained" by
variation in X. The value of r2 (unlike the regression line itself) would be the same if X and
Y were swapped. So r2 is also the fraction of the variance in X that is "explained" by
variation in Y. In other words, r2 is the fraction of the variation that is shared between X and
Y.
In this example, 84% of the total variance in Y is "explained" by the linear regression
model. That leaves the rest of the variance (16% of the total) as variability of the data from
the model (SStot)
3.2 LITERATURE REVIEW ON RELATIONSHIP AMONG RETURNS,

TRADING VOLUME AND VOLATILITY
There have been number of empirical studies in developed markets that provide
evidence on the relationship between trading volume and stock returns. Crouch (1970)
studied the relationship between daily trading volume and daily absolute changes of market
index and individual stocks and found positive correlation between them. Rogalski (1978)
used monthly stock data and Epps (1975, 1977) used transactions data and found a positive
contemporaneous correlation between trading volume and absolute returns. In an emerging
market context, Brailsford (1996) for the Australian stock market, Saatcioglu and Starks
(1998) for Latin America stock market found a positive contemporaneous relationship
between absolute returns and volatility. Smirlock and Starks (1988) analyzed the dynamic
relationship between trading volume and returns using individual stock transactions data and
found a positive lagged relation between volume and absolute price changes. Using nonlinear
Granger causality test, Hiemstra and Jones (1994) analyzed the bidirectional causality
between trading volume and returns for New York Stock Exchange and found support for
positive bidirectional causality between them. However, Bhagat and Bhatia (1996) found
strong one-directional causality running from price changes to trading volume while
analyzing the lead-lag relationship between trading volume and volatility using Granger
causality test. Moosa and Al-Loughani (1995) examined the dynamic relationship between
price and volume for four Asian stock markets excluding India and found a strong evidence
for bi-directional causality for Malaysia, Singapore, and Thailand. Assogbavi (2007) used
vector auto-regression model to analyze dynamic relationship between returns and trading

volume using weekly data of individual equities of the Russian Stock Exchange. They found
a strong evidence of bi-directional relationship between volume and returns.
The relationship between stock return volatility and trading volume has also been
analyzed in several studies. Harris (1987) used the number of transactions as a measure of
volume and found a positive correlation between changes in volume and changes in squared
returns for individual NYSE stocks. In the U.S. stock market, Andersen (1996), Gallo and
Pacini (2000), Kim and Kon (1994), and Lamoureux and Lastrapes (1990, 1994) found
support for the MDH. In emerging markets context, Pyun et al. (2000) investigated 15
individual shares of the Korean stock market, Brailsford (1996) analyzed the effect of
information arrivals on volatility persistence in the Australian stock market and Lange (1999)
for the small Vancouver stock exchange. All of them found support for the mixed distribution
hypothesis. Wang et al. (2005) examined the Chinese stock market and investigated the
dynamic causal relation between stock return volatility and trading volume. They found
support for the MDH as the inclusion of trading volume in the GARCH specification of
volatility reduced the persistence of the conditional variance. In general, most of empirical
studies in the developed and developing market context have found evidence that the
inclusion of trading volume in GARCH models for volatility results in reduction of the
estimated persistence or even causes it to vanish. However, Huang and Yang (2001) for the
Taiwan Stock Market and Ahmed et al. (2005) for the Kuala Lumpur Stock Exchange found
that the persistence in return volatility remains even after volume is included in the
conditional variance equation. The relationship between volume and volatility has also been
studied in the market microstructure strand of literature. However, the results are not
consistent. For example, the model of Admati and Pfleiderer (1988) which assumes three
kinds of traders, informed traders who trade on information, discretionary liquidity traders
who can choose the time they want to trade but must satisfy their liquidity demands before
the end of the trading day, and non discretionary traders who transact due to the reasons
exogenous at a specific time and don’t have the flexibility of choosing the trade time,
supports the positive relationship between volatility and trading volume. On the other hand
Foster and Viswanathan (1990) model suggests that this relationship does not necessarily
follow even when they use the same classification of traders as used by Admati and
Pfleiderer.
Another very important issue that has been has been addressed by researchers is the
measurement of trading volume. Generally, three kinds of measures, namely, number of
trades, volume of trade or total dollar value of trades have been used as a proxy of volume.
The theoretical models of the past did not support the effect of trade size in the volatility
volume relationship. However, recent models consider the effect of trade size on the volume
volatility relationship but contradictory results. On one hand, some models (Grundy and
McNichols, 1989; Holthausen and Verrecchia, 1990; Kim and Verrecchia, 1991) show that
informed traders prefer to trade large amounts at any given price and hence size is positively
related to the quality of information and is therefore correlated with price volatility. On the
other hand, some other models (Kyle, 1985; Admati and Pfeiderer, 1988) indicate that a
monopolist informed trader may disguise his trading activity by splitting one large trade into
several small trades. Thus trade size may not necessarily convey adverse information.
Given the mixed results between price and trading volume especially in emerging markets
context, some additional results from other emerging financial markets are needed to better
understand the price-volume relationship. Very few studies have examined the price-volume
relationship in Indian market. This paper represents one such attempt to investigate returns,
volatility and trading volume relationship in Indian Stock market.

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

LIST OF CONSTITUENTS OF S&P CNX NIFTY
Table 4.1.1
Table 4.1.2: SAMPLE SUMMARY
Company Name STATISTICS OF RETURN
Industry Type NSE Symbol Data Period
ABB LTD. ELECTRICAL EQUIPMENT ABB Jan 2000 to dec 2009
ACC LTD. CEMENT AND CEMENT ACC Jan 2000 to dec 2009
AMBUJA CEMENTS LTD. PRODUCTS AMBUJACEM Jan 2000 to dec 2009
AXIS BANK LTD. CEMENT AND CEMENT AXISBANK Jan 2000 to dec 2009
BHARAT HEAVY ELECTRICALS LTD. PRODUCTS BHEL Jan 2000 to dec 2009
BHARAT PETROLEUM CORPORATION BANKS BPCL Jan 2000 to dec 2009
LTD. ELECTRICAL EQUIPMENT BHARTIARTL Jan 2000 to dec 2009
BHARTI AIRTEL LTD. REFINERIES CAIRN Jan 2000 to dec 2009
CAIRN INDIA LTD. TELECOMMUNICATION - CIPLA Jan 2000 to dec 2009
CIPLA LTD. SERVICES DLF Jan 2000 to dec 2009
DLF LTD. OIL EXPLORATION/PRODUCTION GAIL Jan 2000 to dec 2009
GAIL (INDIA) LTD. PHARMACEUTICALS HCLTECH Jan 2000 to dec 2009
HCL TECHNOLOGIES LTD. CONSTRUCTION HDFCBANK Jan 2000 to dec 2009
HDFC BANK LTD. GAS HEROHONDA Jan 2000 to dec 2009
HERO HONDA MOTORS LTD. COMPUTERS - SOFTWARE HINDALCO Jan 2000 to dec 2009
HINDALCO INDUSTRIES LTD. BANKS HINDUNILVR Jan 2000 to dec 2009
HINDUSTAN UNILEVER LTD. AUTOMOBILES - 2 AND 3 HDFC Jan 2000 to dec 2009
HOUSING DEVELOPMENT FINANCE WHEELERS ITC Jan 2000 to dec 2009
CORPORATION LTD. ALUMINIUM ICICIBANK Jan 2000 to dec 2009
I T C LTD. DIVERSIFIED IDEA Jan 2000 to dec 2009
ICICI BANK LTD. FINANCE - HOUSING INFOSYSTCH Jan 2000 to dec 2009
IDEA CELLULAR LTD. CIGARETTES IDFC Jan 2000 to dec 2009
INFOSYS TECHNOLOGIES LTD. BANKS JPASSOCIAT Jan 2000 to dec 2009
INFRASTRUCTURE DEVELOPMENT TELECOMMUNICATION - JINDALSTEL Jan 2000 to dec 2009
FINANCE CO. LTD. SERVICES KOTAKBANK Jan 2000 to dec 2009
JAIPRAKASH ASSOCIATES LTD. COMPUTERS - SOFTWARE LT Jan 2000 to dec 2009
JINDAL STEEL & POWER LTD. FINANCIAL INSTITUTION M&M Jan 2000 to dec 2009
KOTAK MAHINDRA BANK LTD. DIVERSIFIED MARUTI Jan 2000 to dec 2009
LARSEN & TOUBRO LTD. STEEL AND STEEL PRODUCTS NTPC Jan 2000 to dec 2009
MAHINDRA & MAHINDRA LTD. BANKS ONGC Jan 2000 to dec 2009
MARUTI SUZUKI INDIA LTD. ENGINEERING POWERGRID Jan 2000 to dec 2009
NTPC LTD. AUTOMOBILES - 4 WHEELERS PNB Jan 2000 to dec 2009
OIL & NATURAL GAS CORPORATION LTD. AUTOMOBILES - 4 WHEELERS RANBAXY Jan 2000 to dec 2009
POWER GRID CORPORATION OF INDIA POWER RELCAPITAL Jan 2000 to dec 2009
LTD. OIL EXPLORATION/PRODUCTION RCOM Jan 2000 to dec 2009
PUNJAB NATIONAL BANK POWER RELIANCE Jan 2000 to dec 2009
RANBAXY LABORATORIES LTD. BANKS RELINFRA Jan 2000 to dec 2009
RELIANCE CAPITAL LTD. PHARMACEUTICALS RPOWER Jan 2000 to dec 2009
RELIANCE COMMUNICATIONS LTD. FINANCE SIEMENS Jan 2000 to dec 2009
RELIANCE INDUSTRIES LTD. TELECOMMUNICATION - SBIN Jan 2000 to dec 2009
RELIANCE INFRASTRUCTURE LTD. SERVICES SAIL Jan 2000 to dec 2009
RELIANCE POWER LTD. REFINERIES STER Jan 2000 to dec 2009
SIEMENS LTD. POWER SUNPHARMA Jan 2000 to dec 2009
STATE BANK OF INDIA POWER SUZLON Jan 2000 to dec 2009
STEEL AUTHORITY OF INDIA LTD. ELECTRICAL EQUIPMENT TCS Jan 2000 to dec 2009
STERLITE INDUSTRIES (INDIA) LTD. BANKS TATAMOTORS Jan 2000 to dec 2009
SUN PHARMACEUTICAL INDUSTRIES LTD. STEEL AND STEEL PRODUCTS TATAPOWER Jan 2000 to dec 2009
SUZLON ENERGY LTD. METALS TATASTEEL Jan 2000 to dec 2009
TATA CONSULTANCY SERVICES LTD. PHARMACEUTICALS UNITECH Jan 2000 to dec 2009
TATA MOTORS LTD. ELECTRICAL EQUIPMENT WIPRO Jan 2000 to dec 2009
TATA POWER CO. LTD. COMPUTERS - SOFTWARE
TATA STEEL LTD. AUTOMOBILES - 4 WHEELERS
UNITECH LTD. POWER
WIPRO LTD. STEEL AND STEEL PRODUCTS
CONSTRUCTION
COMPUTERS – SOFTWARE

These tables provide descriptive statistics for return of all constituents companies of NIFTY:
Symbol, Mean, Standard Deviation, Skewness, and Kurtosis over the period from January
2000 through December 2009.
Table 4.1.2a
Statistics
ABB ACC AMBUJACEM AXISBANK BHEL BPCL BHARTIARTL CAIRN CIPLA DLF
N Valid 2496 2614 2522 2519 2528 2497 2135 732 2513 615
Missing 1046 928 1020 1023 1014 1045 1407 2810 1029 2927
Mean .0430 .0449 -.0463 .1434 .0938 .0186 .0940 .0983 -.0585 -.0741
Median .0374 .0361 .0242 .0000 .0506 .0114 .0000 .1109 .0222 -.1437
Std. Deviation 3.91030 2.68000 4.76007 3.36129 3.17562 3.33003 3.36002 3.41497 4.37951 4.78545
Skewness -23.911 -.236 -30.715 .191 -3.978 -3.512 -3.510 -.455 -22.762 -.001
Std. Error of
.049 .048 .049 .049 .049 .049 .053 .090 .049 .099
Skewness
Kurtosis 931.488 3.526 1309.461 3.404 86.739 74.539 76.841 3.782 764.599 3.155
Std. Error of
.098 .096 .097 .098 .097 .098 .106 .180 .098 .197
Kurtosis
Table 4.1.2b
Statistics
ICICI
GAIL HCLTECH HDFCBANK HEROHONDA HINDALCO HINDUNILVR HDFC ITC BANK IDEA
N Valid 2497 2650 2607 2501 2501 2838 2925 2600 2691 692
Missing 1045 892 935 1041 1041 704 617 942 851 2850
Mean .0719 -.0540 .0848 .0921 .0141 -.0594 -.0740 -.0399 .0915 -.0563
Median .0660 .0000 .0000 .0043 .0305 .0292 -.0211 .0024 .0100 .0628
Std. Deviation 1.31793

2.93260 4.20355 40.81387 2.47020 4.02916 23.86066 5.61938 13.07236 3.44349
E2
Skewness -1.464 -3.792 -.002 .268 -24.178 -.294 .001 -39.092 .076 -.030
Std. Error of
.049 .048 .048 .049 .049 .046 .045 .048 .047 .093
Skewness
Kurtosis 29.105 61.705 17.234 8.694 953.118 6.309 2.951 1.824E3 16.822 2.398
Std. Error of
.098 .095 .096 .098 .098 .092 .091 .096 .094 .186
Kurtosis

Table 4.1.2c
Statistics
JINDAL KOTAK
INFOSYSTCH IDFC JPASSOCIAT STEEL BANK LANDT MM MARUTI NTPC ONGC
N Valid 2725 1084 1385 2629 2498 1374 2507 1617 1278 2521
Missing 817 2458 2157 913 1044 2168 1035 1925 2264 1021
Mean -.0658 .0736 .0191 .0393 .0504 .0706 .0347 .1392 .0890 .0682
Median .0000 -.0823 .2080 .0674 .0000 .1351 .0711 .1014 .0593 .0435
Std. Deviation 4.39491 3.80632 6.29151 6.32992 14.13585 3.87476 3.31875 2.61949 2.32337 2.75211
Skewness -13.814 .303 -14.184 -19.284 .122 -8.757 -3.565 .012 -.057 -.961
Std. Error of
.047 .074 .066 .048 .049 .066 .049 .061 .068 .049
Skewness
Kurtosis 383.308 3.342 373.758 558.026 521.523 163.183 76.122 1.636 3.738 18.251
Std. Error of
.094 .148 .131 .095 .098 .132 .098 .122 .137 .097
Kurtosis

Table 4.1.2d
Statistics
REL REL
POWERGRID PNB RANBAXY CAPITAL RCOM RELIANCE INFRA RPOWER SIEMENS SBIN
N Valid 548 1995 2609 2579 949 2697 2524 459 2497 2830
Missing 2994 1547 933 963 2593 845 1018 3083 1045 712
Mean .0165 .1598 -.0251 .0751 -.0554 .0544 .0689 -.1908 .0027 .0788
Median .0000 .0866 .0236 .0695 -.0184 .1090 .0000 -.0918 -.0048 .0472
Std. Deviation 3.19159 4.55273 3.19167 3.78854 3.87701 2.96578 3.32478 4.38493 4.56802 5.71569
Skewness -.319 -.289 -5.947 -.090 -.307 -5.857 -.424 -4.202 -21.078 -.073
Std. Error of
.104 .055 .048 .048 .079 .047 .049 .114 .049 .046
Skewness
Kurtosis 4.671 7.762 123.885 3.921 4.463 137.978 8.337 55.584 732.266 6.360
Std. Error of
.208 .110 .096 .096 .159 .094 .097 .227 .098 .092
Kurtosis
SUN TATA TATA TATA

SAIL STER PHARMA SUZLON TCS MOTORS POWER STEEL UNITECH WIPRO
N Valid 2508 1394 2521 1038 1331 3542 2499 3140 2568 2639
Missing 1034 2148 1021 2504 2211 0 1043 402 974 903
Mean .1159 .0499 -.0078 -.1963 -.0207 .0365 .1157 .0444 .0243 -.0526
Median .0000 .0721 .0000 -.0096 .0638 .0000 .0905 .0769 .0000 .0000
Std. Deviation 4.51368 5.57037 53.85209 6.85399 3.68371 52.07760 2.93236 104.87564 9.24035 4.26676
Skewness -1.336 -16.208 -.055 -13.701 -10.459 .014 -.139 -.006 -35.007 -7.993
Std. Error of Skewness .049 .066 .049 .076 .067 .041 .049 .044 .048 .048
Kurtosis 54.103 456.946 95.404 321.270 200.403 4.409 6.016 4.299 1551.588 187.863
Std. Error of Kurtosis .098 .131 .097 .152 .134 .082 .098 .087 .097 .095
Table 4.1.2e
The statistics from Table 2 show that most of the stock returns are negatively skewed during
the period, although the skewness statistics are not large. The negative skewness implies that there is
higher probability of earning negative returns. These stock returns also show higher kurtosis (>3).
This implies that the distribution of returns have fat tails compared to the normal distribution.
Given the multiple possible measures of trading volume and the inconsistent results from previous
research, we have employed three different measures of trading volume:
• The daily number of equity traded or daily number of transactions (trade);
• The daily number of shares traded (volume);
• The daily total value of shares traded (value).
But due to unavailability of Number of Trades data I am using only the other two measures of Daily
traded volume for further Analysis.
Table 4.1.3: YEAR WISE DESCRIPTION OF AVERAGE DAILY

MEASUREMENTS OF TRADING VOLUME OF NIFTY STOCKS
This table provides the yearly Average estimates of three measures of daily volume
i.e, Number of transactions, Number of shares traded and Value of shares for the data period.
Table 4.1.3
YEAR N TRADE'S VOLUME VALUE IN
(Rs.Million)
2000 9113 5608.5 956429.6 525
2001 9087 6239.6 923933.9 286.4
2002 9512 4352.1 594220.5 161.2
2003 10000 5238.1 902284.3 217.9
2004 10260 7332 1014290 333.5
2005 10592 4026.9 596276.1 236.3

2006 11120 6473.6 660513.6 313.2
2007 11833 7596.8 763866.5 348.8
2008 12436 14310.35 1144107 430.8
2009 13560 29310.35 2154207 550.4
The average daily number of transactions of Nifty stocks was around 7025 with around 0.84
million of traded shares. The average value of share traded per day was around Rs. 319.3
million.
Table 4.1.4: SAMPLE SUMMARY STATISTICS OF VALUE, VOLUME

This table provides basic Summary Statistics of daily trading volume. Daily trading volume is
measured in three ways: the daily total value of shares traded (value), the daily number of
shares traded (volume) and the daily number of equity trades (trade).But due to the
unavailability of number of trades data I used only two measures of daily trading
volume(volume ,value). The mean, standard deviation, skewness and kurtosis of standardized
value of value, volume and trade are presented.
Table 4.1.4
Skew
COMPANY Mean SD Kurtosis Mean SD Skewness Kurtosis
N ness
NAME
VOLUME VALUE
ABB 2497 1.3452E5 2.02417E5 3.018 14.589 1.4565E3 2.1500E3 2.450 8.459
ACC 2615 1.4470E6 1.66686E6 3.097 14.438 4.8224E3 5.1832E3 3.307 19.084
AMBUJACEM 2523 1.8430E6 2.55852E6 3.030 13.442 2346.98 2828.27 2.883 12.936
AXISBANK 2520 7.8948E5 1.30971E6 2.934 11.355 4.4587E3 8.59091E3 2.705 9.093
BHEL 2529 7.5453E5 6.77118E5 2.712 13.725 8.1926E3 1.0681E4 2.367 10.028
BPCL 2498 6.9611E5 8.60298E5 5.257 49.729 2.3229E3 2.6011E3 3.778 27.268
BHARTIARTL 2136 2.4628E6 3.60479E6 6.588 81.691 11431.03 17895.56 3.83 26.57
CAIRN 733 4.0866E6 4.17608E6 6.348 78.931 8.7689E3 9.5716E3 3.66 19.46
CIPLA 2514 7.1506E5 9.83586E5 4.299 49.858 2.1277E3 2.7002E3 4.971 44.436
DLF 616 8.8858E6 7.21892E6 2.623 16.730 3.3857E4 2.5353E4 7.484 105.373
GAIL 2498 1.3047E6 1.95231E6 4.127 24.943 3.2781E3 4.8804E3 3.910 25.149
HCLTECH 2651 1.0583E6 1.52050E6 6.112 62.701 2944.91 3.15366E3 5.359 66.068
HDFCBANK 2502 4.8727E5 5.99929E5 3.173 17.167 4468.90 7000.12 2.874 14.313
HEROHONDA 2502 368826.2 3.63266E5 2.376 9.927 2332.164 2700.22 2.624 11.566
HINDALCO 2839 2.1529E6 3.95114E6 3.778 23.410 3171.20 4.67530E3 3.087 13.622
HINDUNILVR 2926 1.9346E6 1.83966E6 1.984 7.465 4136.34 4177.90 2.357 10.010
HDFC 2608 4.4585E5 5.92490E5 4.899 50.852 6.2520E3 1.1075E4 5.444 79.738
ITC 2601 2.6669E6 3.50575E6 2.067 5.914 6.6599E3 5.9859E3 2.020 6.586
ICICIBANK 2692 2.3715E6 4.15034E6 3.625 18.783 1.3694E4 2.27160E4 2.359 7.138
IDEA 693 6.8806E6 8.59684E6 11.902 215.186 6.0862E3 7.9816E3 10.484 174.177
INFOSYSTCH 2726 940582.0 7.49109E5 1.892 6.424 24872.92 16049.67 1.558 5.903

IDFC 1085 6.8964E6 9.95921E6 14.948 335.505 7.5648E3 9.5443E3 7.284 95.231
JPASSOCIAT 1386 6.0107E6 8.58486E6 2.081 6.084 12252.16 14816.27 1.962 5.466
JINDALSTELs 2630 2.6204E5 7.55798E5 6.488 55.940 3.682.47 8545.75 3.901 21.630
KOTAKBANK 2499 4.2172E5 6.89255E5 2.408 6.855 2251.40 3941.21 2.359 7.047
LT 1375 1.0865E6 1.13991E6 2.294 7.843 1.7752E4 1.6682E4 1.893 6.162
M&M 2508 7.9658E5 6.88456E5 2.154 7.967 3.7598E3 3.9654E3 1.924 5.96
MARUTI 1618 2.0404E6 2.36616E6 3.576 27.954 1.0868E4 8.9554E3 2.143 5.814
NTPC 1279 6.0354E6 8.22970E6 17.198 452.338 9.3964E3 1.0085E4 5.001 55.663
ONGC 2522 1.0482E6 1.22771E6 7.836 173.057 9.3505E3 1.2996E4 14.748 457.182
POWERGRID 549 7.5089E6 2.27901E7 16.928 342.618 8533.87 24742.25 14.582 271.718
PNB 1996 1.3025E6 1.58492E6 3.929 24.736 4.1546E3 4.1543E3 5.369 64.993
RANBAXY 2610 1.0776E6 1.49902E6 7.602 89.099 5.4660E3 6.86730E3 8.578 143.929
RELCAPITAL 2580 2.2475E6 2.85813E6 3.709 26.182 13544.66 19961.27 1.922 4.204
RCOM 950 6.7857E6 4.03190E6 2.226 10.287 2.5122E4 1.7596E4 2.788 12.390
RELIANCE 2698 4.6827E6 4.27030E6 6.973 109.168 3.8785E4 4.06645E4 4.508 52.761
RELINFRA 2525 1.1690E6 1.75334E6 2.393 6.624 1.0424E4 2.01753E4 3.490 16.759
RPOWER 460 5.5604E6 7.42092E6 12.123 200.022 1.1682E4 2.92352E4 15.053 273.043
SIEMENS 2498 2.2554E5 3.89296E5 4.986 49.623 2.0294E3 4.00778E3 6.310 73.579
SBIN 2831 1.8928E6 1.70963E6 1.426 2.687 1.5075E4 1.5600E4 1.712 5.597
SAIL 2509 1.1303E7 1.42548E7 3.098 15.135 8.3609E3 9.4979E3 1.836 5.802
STER 1395 1.4885E6 1.66817E6 1.618 3.585 8.5495E3 9.9063E3 2.155 6.870
SUNPHARMA 2522 130773.1 1.71430E5 4.474 41.155 1290.43 2034.39 4.321 36.667
SUZLON 1039 1.3148E7 2.07240E7 1.849 2.899 1.7168E4 1.7891E4 3.108 16.218
TCS 1332 1.2395E6 1.20122E6 5.718 59.038 1.1299E4 8.9416E3 7.463 104.03
TATAMOTOR
3543 1.6374E6 2.07153E6 2.233 7.127 6676.67 9384.01 2.171 6.390
S
TATAPOWER 2500 679985.7 8.30620E5 3.069 13.427 3359.42 4786.48 4.374 36.55
TATASTEEL 3141 3.7128E6 3.88636E6 1.701 3.337 13098.96 1.54701E4 1.693 3.494
UNITECH 2569 7.9011E6 2.23288E7 3.858 17.937 7.3932E3 1.61908E4 3.650 18.911
WIPRO 2640 8.4886E5 6.7570E5 2.881 25.930 7.0948E3 5.8276E3 1.971 5.878
ANALYSIS 2
Table 4.2.1: PEARSON CORRELATION BETWEEN MEASURES OF

DAILY TRADING VOLUME
This table presents the Pearson Correlation between Measures of Daily Trading Volume
namely Traded Quantity and Value of the shares traded for the whole period. Due to
unavailability of number of trade’s data i am taking these two as measures for Daily Trading
Volume.
Table 4.2.1 TRADED VOLUME AND VALUE OF SHARES
COMPANY NAME CORRELATION COEFFICIENT

ABB 0.7
ACC 0.72
AMBUJACEM 0.96

AXISBANK 0.93
BHEL 0.35
BPCL 0.94
BHARTIARTL 0.76
CAIRN 0.95
CIPLA 0.75
DLF 0.95
GAIL 0.72
HCLTECH 0.86
HDFCBANK 0.92
HEROHONDA 0.84
HINDALCO 0.8
HINDUNILVR 0.87
HDFC 0.86
ITC 0.76
ICICIBANK 0.97
IDEA 0.73
INFOSYSTCH 0.58
IDFC 0.41
JPASSOCIAT 0.75
JINDALSTEL 0.93
KOTAKBANK 0.87
LT 0.83
M&M 0.96
MARUTI 0.82
NTPC 0.99
ONGC 0.92
POWERGRID 0.76
PNB 0.68
RANBAXY 0.97
RELCAPITAL 0.82
RCOM 0.96
RELIANCE 0.77
RELINFRA 0.63
RPOWER 0.68
SIEMENS 0.72
SBIN 0.85
SAIL 0.89
STER 0.56
SUNPHARMA 0.97
SUZLON 0.77
TCS 0.71
TATAMOTORS 0.84
TATAPOWER 0.97
TATASTEEL 0.54
UNITECH 0.73

WIPRO 0.75
Table 4.2.1 presents the Pearson correlation between the two measures of daily trading
volume. The two measures of volume are closely related. For most of the companies we
found high correlation between all the two measures of volume: the number of shares traded,
the value of trades, (more than 0.8). The measures of trading volume have been standardized
for further analysis. But for the companies like TATASTEEL, STER, BHEL, IDFC the
coefficient is less than 0.8 .
Table 4.2.2: RELATIONSHIP BETWEEN STANDARDIZED TRADING

VOLUME (NUMBER OF SHARES) AND RETURNS
This table provides the coefficient estimates from regressions of trading volume against
absolute price changes (absolute returns) and asymmetric coefficient of the Regression
equation.
Rt = α + β Vt ---------- [1]
Where Vt is the standardized trading Volume at time t, Rt is Return at time t. Three measures
of trading volume, the daily total value of shares traded (value), the daily number of shares
traded (volume) and the daily number of equity trades (trade) are considered. Parameter
estimates of all 50 companies are presented.
Table 4.2.2
COMPANY VOLUME
NAME
α β Adj β
ABB 0.232* -0.189* -0.073* 0.05

ACC -0.236* 0.281* 0.121* 0.015
AMBUJACEM -0.67** 0.020** 0.006** 0.016
AXISBANK 0.033* 0.111* 0.055* 0.03
BHEL -0.085* 0.179* 0.051* 0.03
BPCL -0.167* 0.186* 0.069* 0.25
BHARTIARTL 0.271* -0.097* -0.040* 0.02
CAIRN 0.234* -0.136* -0.055* 0.03
CIPLA -0.032 -0.027 0.064 0.001
DLF -0.117 -0.136* 0.057* 0.038
GAIL -0.023 0.095* 0.04* 0.028
HCLTECH -0.173** 0.119** 0.041** 0.028
HDFCBANK -0.461 0.375 0.027 0.001
HEROHONDA -0.454 0.413** 0.036** 0.01
HINDALCO 0.387 -0.297 -0.017 0.001
HINDUNILVR -0.310** 0.253** 0.010** 0.023
HDFC -0.0963 0.771 0.009 0.001
ITC 0.402* -0.415* -0.099* 0.010
ICICIBANK 0.0543* 0.634* 0.085* 0.07
*
IDEA -0.767* 0.673* 0.089* 0.08
INFOSYSTCH -0.034 -0.032 -0.006 0.001
IDFC -0.049** 0.075** 0.032** 0.031
JPASSOCIAT 0.132 -0.083 -0.020 0.001
JINDALSTEL 0.151 -0.104* -0.047* 0.02
KOTAKBANK 0.053 -0.030 -0.007 0.001
LT 0.114 -0.047 -.026 0.001
M&M 0.043** -0.036** -0.021** 0.041
MARUTI 0.140 -0.053 -0.033 0.001
NTPC 0.150* -0.070* -0.044* 0.02
ONGC 0.128* -0.077* -0.50* 0.03
POWERGRID -11.791* 9.578* 0.294* 0.87
PNB 0.125 -0.036 -0.019 0.001
RANBAXY -0.025 0.008 0.004 0.001
RELCAPITAL -0.142* 0.211* 0.087* 0.08
RCOM -0.181* 0.205* 0.078* 0.06
RELIANCE 0.014 0.043 0.013 0.001
RELINFRA -0.058* 0.108* 0.044* 0.028
RPOWER 0.090** 0.102** 0.039** 0.02
SIEMENS 0.131* -0.143* -0.051* 0.03
SBIN 0.128* -0.043* -0.014* 0.021
SAIL -0.160 0.243* 0.083* 0.07
STER -0.002 0.088 0.024 0.001
SUNPHARMA 0.052** 0.038** 0.013** 0.036
SUZLON -0.126 0.095 0.031 0.001
TCS -0.53** 0.083** 0.035** 0.018
TATAMOTORS -10.872* 10.905* 0.265* 0.07

TATAPOWER -0.160* 0.226* 0.093* 0.009
TATASTEEL -16.719* 14.867* 0.181* 0.033
UNITECH -3.822* 3.183* 0.140* 0.020
WIPRO -12.830* 10.985* 0.315* 0.099
Table 4.2.3: RELATIONSHIP BETWEEN STANDARDIZED TRADING

VOLUME (VALUE OF SHARES) AND RETURNS.
Table 4.2.3
COMPANY VALUE FO SHARES TRADED

NAME
α Β Adj β RSQR
ABB -3.836* 2.834* 0.177* 0.031
ACC -5.214* 3.826* 0.211* 0.045
AMBUJACEM -4.876* 3.513* 0.201* 0.040
AXISBANK -2.877* 2.172* 0.159* 0.025
BHEL -4.414** 3.253** 0.193** 0.037
BPCL -5.203* 3.758* 0.210* 0.044
BHARTIARTL -3.922* 2.749* 0.175* 0.030
CAIRN -5.096* 3.382* 0.197* 0.039
CIPLA -4.678* 3.367* 0.197* 0.038
DLF -4.932** 3.223** 0.194** 0.038
GAIL -3.966* 2.925* 0.185* 0.034
HCLTECH -5.298* 3.845* 0.211* 0.045
HDFCBANK -3.279** 2.463** 0.088** 0.02
HEROHONDA -4.739* 3.534* 0.151* 0.023
HINDALCO -3.993* 3.327* 0.147* 0.022
HINDUNILVR -6.146* 5.098* 0.159* 0.025
HDFC -3.900 2.638 0.043 0.001
ITC -0.902* 6.721* 0.062* 0.062
ICICIBANK -6.083* 4.867* 0.223* 0.049
IDEA -11.749* 8.848* 0.292* 0.085
INFOSYSTCH -11.834 9.237 0.297 0.001
IDFC -10.777* 8.349* 0.283* 0.08
JPASSOCIAT -0.7118* 4.275* 0.201* 0.041
JINDALSTEL -3.312** 2.617** 0.156** 0.024
KOTAKBANK -5.307 4.109 0.191 0.001
LT -10.740 7.431 0.267 0.001
M&M -9.035* 6.924* 0.259* 0.067
MARUTI -14.117* 12.548* 0.283* 0.080
NTPC -8.533* 5.688* 0.232* 0.054
ONGC -6.824** 5.268** 0.224** 0.050
POWERGRID -7.057* 5.230* 0.226* 0.051
PNB -7.523* 5.523* 0.230* 0.071
RANBAXY -7.568* 5.806* 0.236* 0.056

RELCAPITAL -6.442 4.978 0.219 0.001
RCOM -8.789* 5.668* 0.234* 0.055
RELIANCE -8.585 6.731 0.252 0.001
RELINFRA -4.590 3.485 0.183 0.001
RPOWER -9.201* 6.333* 0.247* 0.061
SIEMENS -5.628** 4.683** 0.171** 0.029
SBIN -8.438 7.030 0.251 0.001
SAIL -8.371* 6.254* 0.246* 0.060
STER -9.471* 6.307* 0.193* 0.037
SUNPHARMA -7.763** 6.478** 0.155** 0.024
SUZLON -13.364* 12.259* 0.279* 0.078
TCS -0.347 0.330 0.062 0.001
TATAMOTORS -5.924* 5.959* 0.161* 0.026
TATAPOWER -0.099 0.153 0.075 0.001
TATASTEEL -15.642* 14.117* 0.191* 0.037
UNITECH -5.098** 4.333** 0.158** 0.025
WIPRO -14.147* 11.755* 0.274* 0.075
The results of the regression using equation [1] to explain the relation between volume and
price changes and its asymmetric nature are presented in Table 4.2.3. The estimates of β,
which measure the relationship between price changes and volume irrespective of the
direction of the price change, are significant and positive at 1% and 5% level across all two
measures of trading volume. The coefficients are higher for most of the companies, when the
Value of Stocks traded is taken as a measure of trading volume. The asymmetric behaviour of
relation between volume and returns is indicated by coefficient Adj β. However, some of the
companies do not show asymmetric behaviour when considered Number of shares as Daily
trading volume measure. Out of 50 stocks, such companies are 15 who did not show
asymmetric behaviour. These companies are CIPLA, HDFC BANK, HINDALCO, HDFC,
INFOSYS,JP ASSOCIAT, KOTAKBANK, LT, MARUTHI, PNB, RANBAXY,
RELIANCE, SBIN, STER, SUZLON. The parameter Adj β is not significant at even 5%
level.
When considered value of shares traded as daily trading volume measure, out of 50
stocks 10 companies did not show asymmetric behaviour. These companies are HDFC,
INFOSYS, KOTAKBANK, L&T, RELCAPITAL, RELIANCE, RELINFRA, SBIN, TCS,
and TATA POWER.
This small non-asymmetric behaviour supports the finding of Assogbavi (2007) that
clearly indicates the absence of asymmetric relationship in emerging markets. This means
that the cost of taking a long position might not be different from that of taking a short
position in these stocks. In India, till 2006, short selling was prohibited for “Institutional

investors” viz. the Foreign Institutional Investors (FIIs) and the mutual funds registered with
SEBI, banks and insurance companies. After 2006, they were allowed short selling. However,
the short selling has been banned time to time. Hence, the proportion of retail investors and
institutional investors might be the reason behind mixed results of the asymmetric
relationship between price changes and trading volume for some Indian stocks.
When we observe the result from the regression, most of the companies showed the
asymmetric relationship between the Trading Volume and stock Return. When considered the
number of shares as the measure for trading volume 15 companies are shown the non-
asymmetric relation between return and trading volume. But when the value of the shares are
taken as the measure for trading volume only 10 companies has shown non asymmetric
relation between Trading Volume and Return. So we can say that value of shares can be used
as proxy for predicting the stock return. Because of this relation we can say that there is a
continuous information flow in to the market.
Table 4.2.4: Relationship between Standardized Trading Volume (Volume

of shares) and Unconditional Volatility
This table provides the coefficient estimates from regressions of trading volume against
unconditional volatility and asymmetric coefficient of the Regression equation.
= α + β Vt ---------- [2]
Where Vt is the standardized trading Volume at time t, Rt^2 is unconditional volatility at
time t. Three measures of trading volume, the daily total value of shares traded (value), the
daily number of shares traded (volume) and the daily number of equity trades (trade) are
considered. Parameter estimates of all 50 companies are presented.
Table 4.2.4
COMPANY VOLUME
NAME
Α Β Adj β RSQR
ABB -23.824* 39.098* 0.126* 0.016
ACC 4.948* 2.233* 0.153* 0.023
AMBUJACEM 16.911 5.184 0.009 0.001
AXISBANK 8.278* 2.815* 0.177* 0.031
BHEL 1.909 8.125 0.078 0.001
BPCL 6.809* 3.982* 0.051* 0.03

BHARTIARTL 5.237* 5.449* 0.082* 0.07
CAIRN 5.708* 5.283* 0.078* 0.06
CIPLA 13.537 5.127 0.013 0.001
DLF 15.770 5.082 0.013 0.001
GAIL 3.565* 4.845* 0.153* 0.023
HCLTECH 9.971** 7.695** 0.078** 0.06
HDFCBANK 1640.57 -2.275 0.001 0.001
HEROHONDA 1310.24* -267.293* -0.045* 0.023
HINDALCO 314.12* 670.824* 0.219* 0.048
HINDUNILVR 462.933* 89.311* 0.052* 0.031
HDFC 21188.4* -2020.3* -0.066* 0.04
ITC -87.605* 108.045 0.111* 0.012
ICICIBANK 171.544 -12.795 -0.031 0.001
IDEA 186.142* -22.99* -0.055* 0.03
INFOSYSTCH 10.076 7.983 0.019 0.001
IDFC 191.731* -24.900* -0.060* 0.042
JPASSOCIAT 9.022** 27.219** 0.075** 0.06
JINDALSTEL 6.760 28.602 0.088 0.001
KOTAKBANK 194.859 -8.556 -0.006 0.001
LT -7.778** 18.214** 0.086** 0.07
M&M -9.751* 21.043* 0.095* 0.059
MARUTI -12.303* 20.893* 0.097* 0.0312
NTPC -12.539* 21.696* 0.099* 0.010
ONGC -10.925 19.946 0.095 0.001
POWERGRID -1.416** 19.657** 0.092** 0.032
PNB -3.253* 19.235* 0.091* 0.081
RANBAXY 5.455* 3.773* 0.057* 0.021
RCOM 5.561* 4.526* 0.071* 0.051
RELCAPITAL 8.623* 4.135* 0.190* 0.036
RELIANCE 1.241* 7.013* 0.067* 0.052
RELINFRA 5.326* 6.691* 0.095* 0.039
RPOWER 3.930* 8.502* 0.0194* 0.011
SIEMENS 2.834* 15.629* 0.049* 0.026
SBIN 47.137* -15.221* -0.148* 0.022
SAIL 16.502 3.618 0.026 0.001
STER 12.508 12.866 0.030 0.001
SUNPHARMA 3933.1* -1360.9* -0.064* 0.042
SUZLON 1056 -293.749 -0.030 0.001
TCS 473.232 -164.481 -0.022 0.001
TATAMOTORS 3565.98* -854.42* -0.518* 0.025
TATAPOWER 13450.1* -3281.95* -0.150* 0.023
UNITECH 3306.267 95.331 0.023 0.001
TATA STEEL 13450.12 -3281.9* -0.150* 0.023
*
WIPRO 1869.8* 788.686* 0.095* 0.039

Table 4.2.5: Relationship between Standardized Trading Volume (Value of
shares) and Unconditional Volatility
Table 4.2.5
COMPANY VOLUME
NAME
Α Β Adj β RSQR
ABB -21.428* 36.771* 0.117* 0.014
ACC 4.948* 2.233* 0.153* 0.023
AMBUJACEM 24.048 -2.119 -0.003 0.001
AXISBANK 9.447* 1.620* 0.118* 0.014
BHEL 6.331* 3.605* 0.050* 0.02
BPCL 7.771 2.957 0.035 0.001
BHARTIARTL 6.885* 3.580* 0.059* 0.03
CAIRN 6.537* 3.764* 0.062* 0.04
CIPLA 14.135 4.486 0.011 0.001
DLF 17.132 4.154 0.010 0.00
GAIL 4.620* 3.744* 0.118* 0.014
HCLTECH 7.908* 9.778* 0.074* 0.05
HDFCBANK 1104.01* 504.508* 0.109* 0.012
HEROHONDA 776.498* 263.619* 0.053* 0.02
HINDALCO 764.570* 220.557* 0.058* 0.03
HINDUNILVR 561.412 -9.135 -0.006 0.001
HDFC 23099.9* -3497.07* -0.159* 0.025
ITC -72.727* 92.971* 0.072* 0.05
ICICIBANK 158.965 -0.972 -0.002 0.001
IDEA 173.447 -12.531 -0.029 0.001
INFOSYSTCH 17.356 1.094 0.002 0.001
IDFC 184.277* -17.950* -0.042* 0.01
JPASSOCIAT -7.437* 36.453* 0.079* 0.06
JINDALSTEL -1.233* 34.769* 0.087* 0.07
KOTAKBANK 226.824 -32.691 -0.017 0.001
LT 5.808* 11.443* 0.039* 0.01
M&M -0.884* 16.265* 0.049* 0.02
MARUTI -8.751* 18.058* 0.053* 0.03
NTPC -8.693* 17.954* 0.053* 0.03
ONGC -1.255* 14.576* 0.049* 0.02
POWERGRID 4.554** 14.907** 0.047** 0.02
PNB 3.062** 16.307** 0.049** 0.02
RANBAXY 6.304* 3.067* 0.038* 0.01
RELCAPITAL 7.812* 4.916* 0.226* 0.051
RCOM 7.133* 3.526* 0.046* 0.02
RELIANCE 2.828* 5.390* 0.060* 0.04
RELINFRA 7.081* 4.626* 0.085* 0.07
RPOWER 6.474* 5.726* 0.093* 0.09
SIEMENS 9.392* 8.212* 0.031* 0.01

SBIN 37.437* -5.586* -0.063* 0.04
SAIL 20.015 0.256 0.002 0.001
STER 22.248 5.573 0.015 0.001
SUNPHARMA 3746.37* -1040.51* -0.064* 0.04
SUZLON 1152.523 -323.107* -0.036* 0.01
*
TCS 470.577 -139.173 -0.022 0.001
TATAMOTORS 3722.366 -1010.767* -0.207* 0.043
*
TATAPOWER 4.487* 3.867* 0.231* 0.053
TATASTEEL 13224.78 -3127.429* -0.160* 0.026
*
UNITECH 3538.101 -96.390 -0.019 0.001
WIPRO 2889.21* -38.692* -0.005* 0.042
*(**) represents significance of the parameter at 1 %( 5%) significance level.
The relationship between unconditional volatility and trading volume and its asymmetric
behaviour i.e. stronger relationship between trading volume and volatility when price ticks up
than downtick, is estimated through Regression equation [2]. The results are presented in
Tables 4.2.4 and 4.2.5. The estimates of Adj β, which measures the asymmetric relation
between volume and unconditional volatility irrespective of the direction of price change, are
significant and positive at 1% level in most of the stocks and are consistent for all the two
measures of volume. In all the cases, the coefficients are positive. The asymmetric
relationship between unconditional volatility and trading volume is also prominent in most of
the cases from F test (37 stocks when value, 35 when volume is taken as measure of trading
volume). When volumes are decreasing, the relation between trading volume and volatility is
lower as compared to when the volumes are increasing. Similar to the findings in case of
returns and trading volume relationship, the asymmetric behaviour is more prominent when
the value of shares is taken as the proxy of daily trading volume. This can be interpreted that
the value of the shares may be more accurate proxy of information than the other measure.

CHAPTER V
CONCLUSION

5.1 RESULTS AND DISCUSSIONS
• From the descriptive statistics of return we can observe that most of the stock returns
are negatively skewed during the period, although the skewness statistics are not
large. The negative skewness implies that there is higher probability of earning
negative returns.
• The stock returns also show higher kurtosis (>3). This implies that the distribution of
returns have fat tails compared to the normal distribution.
• From the Pearson’s correlation we observe that the coefficient is greater than 0.8 for
most of the companies so from this we can say that there is definite correlation exists
between number of shares traded and value of the shares traded. So we can take either
of this as measure of daily trading volume.
• From the regression analysis between stock return and volume of the shares traded we
found that 70% of the stocks showing the asymmetric relation between stock return
and volume of the shares.
• From the regression analysis between stock return and value of the shares traded we
found that 80% of the stocks showing the asymmetric relation between stock return
and value of the shares.
• So from the above two observations we can conclude that value of the shares traded
can be used as a better proxy for predicting the stock returns.
• From the regression analysis between volume of the shares traded and unconditional
price volatility we found that 70% of the stocks showing the asymmetric relation
between volume of the shares and price volatility. From the regression analysis
between value of the shares traded and unconditional price volatility we found that
74% of the stocks showing the asymmetric relation between value of the shares and
price volatility.
• So from the above two observations we can conclude that value of the shares traded
can be used as a better proxy for predicting the unconditional price volatility.
• From the above analysis we can say that there is a definite asymmetric relation
between daily trading volume and rate of return. From this it is evident that the rate of
information flow into the stock market is good and the information is effectively
converted into stock prices. This shows efficient market condition.
5.2 DIRECTIONS FOR FURTHER RESEARCH

• From the above done analysis we can conclude that there exists a strong relationship
between volume, return and volatility. So further research can be developed by
forecasting the volatility and return through which the risk can be minimised.
• Comparative analysis of developed markets can be done in this field of research.
5.3 LIMITATIONS
• Present study of research is limited to Indian stock market and especially Nifty fifty.
• Because of unavailability of number of trades of daily data I could only consider two
measures of trading volume that are value of the shares and volume of the shares
traded
5.4CONCLUSIONS
Understanding the relationship between returns, volatility and trading volume in financial
markets is equally important for traders, researchers and policy makers. The distribution of
returns has implications for various financial models and risk management practices. The
dynamic relationship between returns and trading volume helps to understand the market
clearing process and frictions in the market. Also, implications of trading volume in
forecasting volatility helps agents like traders, with a very short-term investment horizon and
many portfolio managers that have a medium- to long-term investment horizon. In emerging
markets generally and in Indian stock market context specifically, very few empirical studies
has been reported on aforementioned issues. This paper reports an empirical study for Indian
Stock market.
Using 50 Indian stocks from NSE NIFTY index, we analyze the returns and volume
relationship, focusing on the asymmetric relation between absolute returns and trading
volume and asymmetric relation between unconditional volatility and daily trading volume.
Two measures of trading volume namely number of shares traded and value of shares traded
are used. The correlations between the two measures of daily trading volume are examined

using Pearson’s correlation .Asymmetric relation between level of trading volume and returns
is examined using linear regression. In case of volatility, the asymmetric relation is examined
between unconditional volatility and volume using linear regression. The evidence for
positive asymmetric relation between returns and volume as well as unconditional volatility
and volume is found. We also find that the level of Return is dependent on the direction of
daily volume change in case of 80% of the stocks in the sample when we take value of shares
as measure for daily volume so it is better to use share value as proxy for predicting the stock
return.
5.5 SUGGESTIONS
• From the analysis it is evident that there is a strong relationship between volume and
return so the retail investors and institutional investors can take value of the shares as
proxy for prediction of return but little percentage of companies showing non
asymmetric relationship so investors should be careful of short selling.
• From the results of the analysis we can say that the relation is much useful for the
technical analysis because technical analyst gives less significance to a price increase
with low trading volume than to a similar price increase with substantial increase in
volume.
• From the analysis it is evident that there is a strong relationship between volume and
volatility based on this the portfolio managers can take the decisions on taking long or
short positions on a stock.

BIBILIOGRAPHY

BIBLIOGRAPHY
• http://www.nseindia.com/
• http://www.graphpad.com/curvefit/linear_regression.htm
• http://davidmlane.com/hyperstat/A34739.html
• http://davidmlane.com/hyperstat/A62891.html
• http://www.eurojournals.com/ejefas_12_05.pdf
• http://www.ejbe.org/EJBE2009Vol02No04p113MAHAJAN-SINGH.pdf
• http://www.indiabulls.com/securities/home/aboutindiabulls.htm

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EMPERICAL INVESTIGATION OF RELATIONSHIP BETWEEN

STOCK RETURN, TRADING VOLUME AND VOLATILITY:

Submitted in partial fulfilment for the award of the degree

MASTER OF BUSINESS ADMINISTRATION

conferred on an earlier occasion on this or any other candidate.

Dr. K.PADMA Dr. C. SURYA PRAKASH RAO

Signature of Supervisor Signature of HOD

I hereby declare that the project entitled “Empirical Investigation Of Relationship

Between Stock Return, Trading Volume And Volatility: Evidence From

INDIABULLS SECURITIES LIMITED | 3

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SL NO. NAME OF THE CONTENT PAGE NO.

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S.NO Table Name of the Item

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The emergence of informational efficient financial markets is an important facet of

Return-volume relationships are of common interest as they may unearth

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1.3 STATEMENT OF THE PROBLEM

1.4 OBJECTIVES OF THE STUDY

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1.5 RESEARCH METHODOLOGY

The percentage return of the stock is defined as

Data : Secondary data

Number of observation points : 1,10,000

Statistical tool : SPSS

Analysis : Pearson’s correlation, linear regression, Descriptive statistics

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The 1850's witnessed a rapid development of commercial enterprise and brokerage

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Trading Pattern of the Indian Stock Market

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1. Members/broker of a stock exchange i.e., for buying and selling of scripts.

Recent Developments In Secondary Market

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National Stock Exchange (NSE)

Trading at NSE can be classified under two broad categories:

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There are two kinds of players in NSE:

NSE-50 INDEX (NIFTY)

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Indiabulls Group has four separately listed companies with

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Indiabulls Securities Limited was originally incorporated in India on June 9 1995

Indiabulls Securities Limited is the jewel in the crown of Indiabulls group.

• Power indiabulls( PIB)

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Equities and Derivatives

• Offers purchase and sale of securities (stock, bonds, debentures etc.)

• Helps to build ideal portfolio

• Depository participant with NSDL and CDSL.

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• Account opening charges : 900 Rs ( NON-REFUNDABLE)

Charges : 3 paisa for 100 Rs 35 paisa for 100 Rs

Exposure: 6-12 times 2 - 4 times

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3.1 CONCEPTUAL AND THEORITICAL SURVEY

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