The present article examines the impact of rolling settlement on contemporaneous and causal relationships between return, volume and volatility in Indian stock market using daily data of closing prices and volume of NIFTY index of NSE and SENSEX of BSE from January 1997 to June 2007. The correlation analysis reveals that contemporaneous relationship is not detected between volume and returns in post rolling settlement period for both NIFTY and SENSEX. Positive relationship between volume and return has been seen in only pre-rolling settlement period in both indices (NIFTY and SENSEX). This indicates that markets have become more efficient after introduction of rolling settlement. In addition, causality results also provide conclusive evidence of improvement in efficiency at NSE and BSE with the introduction of rolling settlement. Thus, rolling settlement makes shares more attractive; investors would be more willing to supply risk capital in the country if they know that shares can be rapidly converted into cash when need arises. Moreover, noise created by prices has been reduced with reduction in settlement days.
BessembinderH.SeguinP.J. (1993). Price volatility, trading volume and market depth: evidence from futures markets. The Journal of Financial and Quantitative Analysis, 28(1), 21–39.
2.
Bhanupant (2001). Testing dynamic relationship between returns and trading volume on the National Stock Exchange. Downloaded from www.utiicm.com/bhanupant.html on March27, 2006.
3.
BlumeL.EasleyD.HaraM.O. (1994). Market statistics and technical analysis: The role of volume. The Journal of Finance, 49(1), 153–181.
4.
BrailsfordT.J. (1996). The empirical relationship between trading volume, returns and volatility. Journal of Accounting and Finance, 35(1), 89–111.
5.
CinerCetin (2002). The stock price-volume linkage on the Toronto stock exchange: Before and after automation. Review of Quantitative Finance and Accounting, 19(4), 335–349.
6.
CinerCetin (2003). The dynamic relationship between stock prices and trading volume: An examination of call markets. Downloaded from http://207.36.165.114/Denver/Papers/callmarkets.pdf on May26, 2006.
7.
ChanK.FongWai-Ming (2000). Trade size, order imbalance and the volatility-volume relation. Journal of Financial Economics, 57(2), 247–273.
8.
ChenG.FirthM.YuX. (2004). The price-volume relationship in China’s commodity futures markets. The Chinese Economy, 37(3), 87–122.
9.
ChenG.FirthM.RuiO. (2001). The dynamic relation between stock returns, trading volume and volatility. The Financial Review, 36(3), 153–174.
10.
ClarkP. (1973). A subordinated Stochastic process model with finite variances for speculative prices. Econometrica, 41(1), 135–155.
11.
ComiskeyE.E.WalkingR.A.WeeksM.A. (1984). Dispersion of expectations and trading volume. Journal of Business Finance and Accounting, 14(2), 229–239.
12.
CrouchR.L. (1970). The volume of transaction and price changes on the New York stock exchange. Financial Analysts Journal, 26(4), 104–109.
13.
DaiglerR.T.WileyM.K. (1999). The impact of trader type on the futures volatility-volume relation. The Journal of Finance, 54(6), 2297–2316.
14.
DarratA.F.RahmanS.ZhongM. (2003). Intraday trading volume and return volatility of the DJIA stocks: A note. Journal of Banking and Finance, 27(10), 2035–2043.
15.
DatarV.T.NaikN.Y.RadcliffeR. (1998). Liquidity and asset returns: An alternative test. Journal of Financial Markets, 1(2), 203–220.
16.
EppsT.W.EppsM.L. (1976). The Stochastic dependence of security price changes and transaction volumes: Implications for the mixture of distributions hypothesis. Econometrica, 44(2), 305–321.
17.
EppsT.W. (1975). Security price changes and transaction volumes: Theory and evidence. The American Economic Review, 65(4), 586–597.
18.
FamaE.F. (1965). The Behavior of Stock-Market Prices. The Journal of Business, 38(1), 34–105.
19.
GallagherL.KielyD. (2005). Volume and GARCH effects for dual-listed equities: evidence from Irish equities. The Irish Accounting Review, 12(1), 63–82.
20.
GallantA.R.RossiP.E.TauchenG. (1992). Stock prices and volume. The Review of Financial Studies, 5(2), 199–242.
21.
GodfreyM.D.GrangerC.W.J.MorgensternO. (1964). The random walk hypothesis of stock market behavior. Kyklos, 17(1), 1–30.
22.
GrammatikosT.SaundersA. (1986). Futures price variability: A test of maturity and volume effects. The Journal of Business, 59(2), 319–330.
23.
GrangerC.W.JMorgensternO. (1963). Spectral analysis of New York stock market prices. Kyklos, 16(1), 1–27.
24.
GurgulH.MajdoszP.MestelR. (2005). Joint dynamics of prices and trading volume on the Polish stock market. Managing Global Transitions, 3(2), 139–156.
25.
HannaM. (1978). Security price changes and transaction volumes: Additional evidence. American Economic Review, 68(4), 692–695.
26.
HarrisL.GurelE. (1983). The joint distribution of speculation prices and of daily trading volume, Working Paper No. 34–84, University of Southern California, Los Angles, CA.
27.
HarrisL.GurelE. (1984). Transaction data tests of the mixture of distribution hypothesis. The Journal of Financial and Quantitative Analysis, 22(2), 127–141.
28.
HarrisL.GurelE. (1986). Cross-security tests of mixture of distribution hypothesis. The Journal of Financial and Quantitative Analysis, 21(1), 39–46.
29.
ISMR. (2007). Indian Securities Market A Review. X, Downloaded from www.nseindia.com, pp. 1–360.
30.
JainP.C.JohG. (1986). The dependence between hourly prices and trading volume. The Journal of Financial and Quantitative Analysis, 23(3), 269–283.
31.
JonesC.M.KaulG.LipsonM.L. (1994). Transactions, volume and volatility. The Review of Financial Studies, 7(4), 631–651.
32.
KamathR.R.ChakornpipatR.ChatrathA. (1998). Return distribution and the day-of-the-week effects in the stock exchange of Thailand. Journal of Economics and Finance, 22(2–3), 97–106.
33.
KamathR.R.ChakornpipatR.ChatrathA. (1987). The relation between price changes and trading volume: A survey. The Journal of Financial and Quantitative Analysis, 22(1), 109–126.
34.
KocagilA.E.ShachmuroveY. (1998). Return-volume dynamics in futures markets. The Journal of Futures Market, 18(4), 399–426.
35.
KumarA. (2006). A Markov-switching vector error correction model of the Indian stock price and trading volume. Downloaded from http://www.igidr.ac.in/ on April8, 2006.
36.
LeeC.M.C.SwaminathanB. (2000). Price momentum and trading volume. The Journal of Finance, 55(5), 1017–1069.
37.
LeeB.S.RuiO.M. (2000). Does trading volume contain information to predict stock returns? Evidence from China’s stock markets. Review of Quantitative Finance and Accounting, 14(4), 341–360.
38.
LeeB.S.RuiO.M. (2002). The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence. Journal of Banking and Finance, 26(1), 51–78.
39.
LongM. D. (2007). An examination of the price-volume relationship in the options markets. International Research Journal of Finance and Economics, 10, 47–56.
40.
MahajanS.SinghB. (2009a). Return-volume dynamics in Indian stock market. Asia Pacific Business Review, V(3), 63–70.
41.
MahajanS.SinghB. (2009b). The empirical investigation of relationship between return, volume and volatility dynamics in Indian stock market. Eurasian Journal of Business and Economics, 2(4), 113–137.
42.
MahajanS.SinghB. (2008a). An empirical analysis of stock price-volume relationship in Indian stock market. Vision, 12(3), 1–13.
43.
MahajanS.SinghB. (2008b). Trading volume and return volatility dynamics in Indian stock market. ICFAI Journal of Applied Finance, 14(2), 53–73.
44.
MahajanS.SinghB. (2007). Return-trading volume linkage in the Indian stock market: Evidence from national stock exchange. ICFAI Journal of Applied Finance, 13(5), 57–68.
45.
McCarthyJ.NajandM. (1993). State space modelling of price and volume dependence: Evidence from currency futures. Journal of Futures Market, 13(4), 335–344.
46.
McmillanD.SpeightA. (2002). Return-volume dynamics in UK futures. Applied Financial Economics, 12(1), 707–713.
47.
MestalR.GurgulH.MajodszP. (2003). The empirical relationship between stock returns, return volatility and trading volume on the Austrian stock market. Retrieved from www.charttricks.com/Resources/Articles/volume_volatility_Mestel.pdf on February21, 2006.
48.
MishraV. (2004). The stock return-volume relation: Evidences from Indian IT industry. SSRN Working Paper. Retrieved from www.ssrn.com on March5, 2006.
49.
MorganI.G. (1976). Stock prices and heteroskedasticity. Journal of Business, 49, 496–508.
50.
OtavioR.BernardusF.N. (2006). The empirical relationship between stock returns, return volatility and trading volume in the Brazilian stock market. SSRN Working Paper, Retrieved from www.ssrn.com on March17, 2006.
51.
RagunathanV.PekerA. (1997). Price variability, trading volume and market depth: Evidence from the Australian futures market. Applied Financial Economics, 7(5), 447–454.
52.
ReddyS.Y. (1997). Efficiency of Indian stock markets: An empirical analysis of weak-form EMH of the BSE. UTI Indian Capital Market Conference, December, 91–115, Mumbai: Quest Publications.
53.
RichardsonG.SefcikS.E.ThompsonR. (1987). A test of dividend irrelevance using volume reaction to a change in dividend policy. Journal of Financial Economics, 17(2), 313–333.
54.
RogalskiR.J. (1978). The dependence of prices and volume. The Review of Economics and Statistics, 60(2), 268–274.
55.
RutledgeD.J.S (1979). Trading volume and price variability: New evidence on the price effects of speculation. In PeckA. E. (Ed.), Selected Writings on Futures Markets (pp. 237–251). Chicago: The Chicago Board of Trade.
56.
RutledgeD.J.S (2003). Policy issues in Indian securities markets. In KruegerAnneChinoySajjid Z. (Eds.), Reforming India’s External, Financial and Fiscal Policies, Stanford Studies in International Economics and Development (pp. 129–147). Stanford University Press.
57.
SmirlockM.StarksL. (1985). A further examination of stock price changes and transaction volume. The Journal of Financial Research, 8(3), 217–225.
58.
SmirlockM.StarksL. (1988). An empirical analysis of the stock price-volume relationship. The Journal of Financial Research, 8(1), 31–41.
59.
StefanoB.HouptO.S. (2006). Risk, return and volume in an emerging stock market: The Bilbao stock exchange, 1916–1936. Retrieved from www.helsinki.fi/iehc2006/papers1/Battilos.pdf on August12, 2006.
60.
StevensonA.R.BearM.R. (1970). Commodity futures: Trends or random walks?The Journal of Finance, 25(1), 65–81.
61.
SuominenM. (2001). Trading volume and information revelation in stock markets. The Journal of Financial and Quantitative Analysis, 36(4), 546–565.
62.
TambiM.K. (2005). An empirical study of return-volume relationship for indian market. Retrieved from 129.3.20.41/eps/fin/papers/0504/0504013.pdf on April8, 2006.
63.
TauchenG.PittsM. (1983). The price variability-volume relationship on speculative markets. Econometrica, 51(2), 485–505.
64.
WangG.H.K.YauJ. (2000). Trading volume, bid-ask spread and price volatility in futures markets. The Journal of Futures Market, 20(10), 943–970.
65.
WesterfieldR. (1977). The distribution of common stock price changes: An application of transactions time and subordinated Stochastic models. The Journal of Financial and Quantitative Analysis, 12(5), 743–765.
66.
WoodR.A.McInishT.H.OrdJ.K. (1985). An investigation of transaction data for NYSE stocks. The Journal of Finance, 40(3), 739–741.
67.
YingC.C. (1966). Stock market prices and volume of sales. Econometrica, 34(3), 676–686.
