INVESTIGATING CAUSAL RELATIONS BETWEEN PRICE CHANGES AND TRADING VOLUME CHANGES IN THE TURKISH MARKET

ABSTRACT: This empirical investigation examines the causal relations between daily price changes and trading volume changes on the nascent stock exchange of Istanbul, Turkey. The most recent 40-month period from January 2003 through April 2006 is the focus of this study. The long held view that rising markets tend to be accompanied by rising volume and declining markets tend to be accompanied by falling volume is robustly supported by the evidence uncovered for the Istanbul Stock Exchange. Moreover, the evidence strongly indicates that the volume – return relation is asymmetric, depending on the direction of the underlying market. The findings of this study also support the notion that it takes trading volume to make the market index move. The tests of the Granger causality between daily index returns and daily volume changes provide an overwhelming evidence of a bi-directional feedback