This paper examines the casual dependence of price changes and trading volume by using linear and nonlinear models for Australia, India, Japan, New Zealand and Taiwan stock exchange from January 1, 2005 to December 31, 2008. The empirical methods used include Unit-root tests, Granger causality tests and MA (5) GARCH (1,1). Granger Causality test demonstrates that for some countries, returns cause volume and volumes cause returns. The evidence indicates stronger evidence of returns causing volume than volume causing returns. The results present a significant relationship between trading volume and the value of price changes, the exogenous variable contributes some information to the return and volatility series for capturing the potential non-linear dependence of stock and trading volume in conditional variance to determine the contemporaneous and lagged volume effect after incorporation. Moreover, the findings suggest that the presence of current and past returns, trading volume adds some predictive power for future returns in these countries.
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