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THE RELATION BETWEEN STOCK RETURNS, TRADING VOLUME AND RETURN VOLATILITY OF THE CEE BANKS
Delia-Maria Rotila, Mihaela Onofrei, Alin Marius Andries

ABSTRACT. This paper investigates the relation between the stock returns, trading volume and return volatility in the Central and Eastern Europe countries considering only the bank stocks. For 2005-2014 period, the authors of the article investigate whether there exists a relation between stock returns, trading volume and return volatility, and if each of the variables can help to predict the other ones. In order to see the nature and the direction of the relation by applying GMM model, Granger causality and variance decomposition technique, the results show that the relation exists only under certain conditions, and there is a unidirectional relation rather than a bidirectional one. Due to the relation between the stock returns and trading volume after the crises, the results bring to light that the relation exists but only in the case of small size stocks and those traded in the EU zone, where the returns depend on both trading volume and their past values. The results from Granger causality demonstrated that the past values of trading volume could be used in forecasting the values of stock return in the case of domestic and large banks. Moreover, for crisis period, the results confirm that the volume can be used in order to predict the future values of return volatility .

KEYWORDS: CEE Countries, Bank Performance, GMM, VAR Model, Variance Decomposition, Pairwise Granger Causality Test.

JEL classification: C23, C33, G12, G17.