What is the relationship between volatility or beta and trading volume?
i am masters student and i doing my thesis on the correlation between volatility and trading volume. my research aims to find the impact of trading volume on the volatility or the beta of each stock. i wanted to do this by having a regression analysis but will that mean that i will have to measure the weekly or daily beta. so i need to know other techniques or models that will help predict this correlation and if the regression analysis is a good way then how? i have also read about the GARCH model but i don't really understand how to predict this correlation using it.
- Anonymous1 decade agoFavorite Answer
Beta is the mathmatical estimated variance of a specific stock or portfolio. It will always lessen with trading volume and diversification, this is why diversification is necessary in your portfolio's. More diversification means less risk. I always invest in the stock indexes since you do not have to pay the brokerage houses for there expertise in picking the stocks (mutual funds) for you and you still get the diversification. After all very few Mutual funds outperform the market as it is. Sorry, I have never heard of the GARCH method but my masters is in Financial Statement Analysis. Enjoy your research you'll actually miss it when you graduate, belive it or not.