Testing for Linear and Non-linear Granger Causality in the Stock Price-Volume Relation: Korean Evidence

In this paper, linear and non-linear Granger causality tests are used to examine the dynamic relationship between daily Korean stock returns and trading volume. We find evidence of significant bidirectional linear and non-linear causality between these two series. ARCH-type models are used to examine whether the non-linear causal relations can be explained by stock returns and volume serving as proxies for information flow in the stochastic process generating volume and stock returns respectively.