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Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects
Christopher G. Lamoureux and William D. Lastrapes
The Journal of Finance
Vol. 45, No. 1 (Mar., 1990), pp. 221-229
Stable URL: http://www.jstor.org/stable/2328817
Page Count: 9
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This paper provides empirical support for the notion that Autoregressive Conditional Heteroskedasticity (ARCH) in daily stock return data reflects time dependence in the process generating information flow to the market. Daily trading volume, used as a proxy for information arrival time, is shown to have significant explanatory power regarding the variance of daily returns, which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns. Furthermore, ARCH effects tend to disappear when volume is included in the variance equation.
The Journal of Finance © 1990 American Finance Association