Volume, Volatility and Leverage: A Dynamic Analysis

This paper uses dynamic impulse response analysis to investigate the interrelationships among stock price volatility, trading volume, and the leverage effect. Dynamic impulse response analysis is a technique for analyzing the multistep ahead characteristics of a nonparametric estimate of the one-step conditional density of a strictly stationary process. The technique is the generalization to a nonlinear process of Sims-style impulse response analysis for lienar models. In this paper, we refine the technique and apply it to a long panel of daily observations on the price and trading volume of four stocks actively traded on the NYSE: Boeing, Coca Cola, IBM, and MMM.