The causal relationships between stock returns, trading volume, and volatility : Empirical evidence from Asian listed real estate companies

Abstract

Purpose

The real estate markets in Asia have attracted significant investor attention as they have grown rapidly in recent years. Both local and foreign investors continue to display a strong appetite for Asian real estate investment projects. Given the different characteristics of listed real estate stocks, the purpose of this paper is to focus on the causal relations between the financial variables of these stocks. This financial analysis can help investors to understand the characteristics of listed real estate companies, provide implications for optimal asset allocation decisions, and also increase the predictability of portfolio returns.

Design/methodology/approach

In this research, the paper investigates the contemporaneous and causal relations between stock returns, trading volume and volatility in a domestic market context and between different national markets for listed real estate companies in seven Asian economies.

Findings

The paper finds that there are positive contemporaneous relations between trading volume and both returns and absolute returns. When the paper examines the causal relations between the financial variables, the evidence implies that current trading volume helps to explain the returns indirectly by leading return volatility; however, trading volume does not help to explain future returns directly. Extending the causality test to international markets, the listed real estate portfolios of the four Southeast Asian countries are found to be more closely correlated than those of the other three countries studied here. Among the four Southeast Asian countries, Singapore, the only developed country, is found to play an influential role, its current financial variables having predictive power for the other countries.

Originality/value

This research provides global investors with a better understanding of the Asian listed real estate market, showing that trading volume contains important information regarding returns, that the characteristics of listed real estate companies are closer to those of the financial market than those of the real estate markets, and that the markets of the major economies have extensive influence over the smaller markets. Moreover, given the scarcity of research on the performance of Asian listed real estate companies themselves, this study improves the completeness of the academic literature.

Citation

Sana Hsieh, H.-C. (2014), "The causal relationships between stock returns, trading volume, and volatility : Empirical evidence from Asian listed real estate companies", International Journal of Managerial Finance, Vol. 10 No. 2, pp. 218-240. https://doi.org/10.1108/IJMF-10-2013-0103