Trading Volume and Stock Return Volatility in Indian Stock Market (WWW - Writekraft.com)

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Trading volume and stock return volatility in

Indian Stock Market
Introduction-
Investors, Policy makers, Portfolio managers, Brokers, Academicians and Regulators
alike are now intensively focused upon understanding the volatility of asset returns and
its relationship to trading volume. Stock market plays an important role in the economic
development of a country because its performance has direct impact on capital market
growth. Trading volume and stock returns are the two major pillars of the stock market
that possess the explanatory power to provide a transparent map of the capital market
microstructure in more depth. However, these factors may contain valuable information
about securities and provide guidelines to investors, policy makers, portfolio managers,
brokers, etc., for taking various decisions on the stock market’s volatility. Volatility
always creates a challenging environment in front of investors, policy makers, brokers,
portfolio managers, brokers, etc. because almost every interesting financial decision
revolves around this element in the capital market. Since volatility is a standard
measure of financial vulnerability, it plays a key role in assessing risk/return trade-offs.
Investors always have some expectation from their investment decision and wish to fill
up the gap between expectations and actual return from the securities they hold. The
arrival of new information always causes volatility in the stock market. All investors
are heterogeneous in their nature and always take position as per their interpretations.
Therefore, analyzing volatility is essential in order to know the seasonal and causal
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relationship between trading volume and stock return. An investor’s objective
achievement thus depends upon the rationality behind trading - volume relationships
and stock return volatility of the stock market. Therefore, in order to grow, succeed and
survive in the dynamic environment, investors should develop certain basis regarding
trading volume and stock return volatility which must be followed when taking rational
investment decision.
Through this study, an attempt has been made by the researcher to present a practical
point of view over the trading volume and stock return volatility statuses in Indian
stock market along with investors’ perceptions on the topic.
To get conclusive results on the subject we first analyzed secondary data of sensitive
index (SENSEX) and S&P CNX Nifty during the period of April 2002 to March 2012.
After this we conducted a survey in the market to study investors’ perceptions on this
subject. It is pertinent to reiterate here that our study deals with an important issue
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which has not been adequately investigated with a long-term perspective by other
studies. Most of the earlier studies have taken only one aspect into consideration, the
relationship between trading volume and stock return volatility. Investors’ perceptions,
however, have not been considered in any of the studies. Moreover, the studies have
been done on NSE, BSE and still there is no comprehensive study available on Indian
stock market which is to consider every type of market.
6.2 Findings of the Study
Various statistical tests have been applied to extract vital information regarding the
purpose of the study in previous chapters. A summary of the findings has been
presented with a view to answering the research questions raised in the study.
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First Research Objective
To examine the causal relationship between trading volume and stock return
volatility.
For this question we reviewed the literature on causal relationship between trading
volume and stock return volatility. It did not give conclusive results. Past literature
pointed out that the movement in the stock market is affected by the arrival of new
information into the market. Whenever the information is positive it takes upward
movement and vice-versa. Strong relationships have always been found by various
researchers between trading volume and stock return, whenever the flow of information
is most volatile. Lawrence and Makridakis (1989) suggests that the volatility of past
price series might have a significant impact on investors' forecasting behaviour. The
effects of volatility on the market level have been widely researched in the finance
literature, but the results have been inconclusive. Some of the studies have suggested a
positive relationship between volatility (stock variance) and stock returns (Goyal and
Santa- Clara, 2003; Malkiel and Xu, 2002); while others have found the opposite. For
example, Ang, Hodrik, Xing, and Zhang (2004) demonstrated that stocks with a
relatively high past volatility tend to have lower future returns than those with a low
past volatility. Granger Causality test is very sensitive for predicting one variable by
employing another variable of time series. The study has employed the Granger
Causality Test for discovering the causal relationship between trading volume and
stock return volatility. The movement in stock market can only be decided, when
trading volume and stock returns will consider simultaneously. The study of both
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variables was required to find out the transparent map of the movement in the stock
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market. The studyR Rof one indicator always conveys vague information about stock
market activity and cannot be used as an information signal. Therefore, studying the
causal relationship between stock returns and trading volume improves the
understanding of the microstructure of the stock market. The basic purpose of this
relationship study is to provide protection against movement in future, in order to
reduce the extent of financial risks.
Campbell and Hentschel (1992) theoretically show that if expected future stock returns
increase when volatility increases, then current stock prices (and hence returns) will fall
to adjust to this change in future expectations. Thus, an increase to volatility causes
negative returns. The volatility feedback hypothesis relies on the existence of timevarying
risk premiums similar to the link between changes in volatility and returns
(Poterba and Summers, 1986).
To know the relationship between trading volume and stock return volatility in stock
markets is very important for investors, brokers, researchers, policy makers and
portfolio managers for shifting their positions as per the movement of market. It
provides guidelines for taking rational investment decisions to meet their expectation
level with actual return from the securities they hold. Investors, brokers, policy makers
and portfolio managers will benefit in modeling and forecasting short-run returns and
volatility. The dependence of return on past returns, past volume and current volume
always raises questions regarding investors’ decisions. The dynamic and causal
relationship between trading volume and stock return volatility helps in understanding
the future movement of the market.
Granger causality test provide the transparent map of causal relationship between
trading volume and stock return volatility in Indian stock market. Based on the
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probability values reported in Table 3.8, the hypothesis that return does not Granger
cause volume can be rejected in sensitive index (SENSEX) as well as S&P CNX Nifty.
So, it can be inferred that returns contain significant information for volume. But the
hypothesis that volume does not Granger cause return can be rejected only in sensitive
index (SENSEX). Thus, it appears in S&P CNX Nifty that causality runs one way but
not other way. However, bi-directional causality does not exist. But in sensitive index
(SENSEX) causality runs in both directions such as return causes volume and volume
causes return. Therefore, bi-directional causality exists in sensitive index (SENSEX).
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The hypothesis that previo
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Correlation values in respect of sensitive Index (SENSEX) and S&P CNX Nifty are
0.001 and 0.002, which are positioned at a 1% level of significance. It is found that
previous day’s return and current stock returns are positively correlated and strongly
supporting of one another. From this result it can be inferred that the indices do not
vary significantly while making strategies regarding previous day’s return and current
stock returns. The significance correlation between previous day’s return and current
stock returns is higher than the results of the correlation between previous day’s trading
volume and current stock returns. Correlation values in respect of sensitive Index
(SENSEX) and S&P CNX Nifty are 0.012 and 0.018, which are insignificant at a 5%
level of significance. It is found that previous day’s returns and current trading volume
are in an insignificant positive correlation. The correlation between previous day
returns and current trading volumes is lesser than the results of the correlation between
previous day returns and current stock returns. Previous day’s trading volume and
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current trading volumes are in a significant positive correlation. From this result it can
be inferred that the indices do not vary significantly while making strategies regarding
previous day’s trading volume and current trading volume. Thus the strategies
regarding previous day’s trading volume and current trading volume for these stock
indices should be the same.
Correlation results provide the degree of linear relationship between two or more
variables, but it does not tell anything about the cause-effect relationship between them.
Correlation results have found that an asymmetric relationship exists between trading
volume and stock return which means that the change in one indicator does not have an
equal impact on the other variable.
Third Research Objective
To find out seasonality effects on trading volume and stock market returns.
This objective analyzed the pattern of volatility in the Indian stock market during April
1, 2002 to March 31, 2012 in terms of its time varying nature, presence of certain
characteristics such as volatility clustering and ‘calendar month effect,’ and whether
there exists any conditional volatility in the Indian stock market. The estimation of
volatility is made at the macro level on two major market indices, namely, S&P CNX
Nifty and Sensitive Index (SENSEX). Volatility always creates challenging
environment in front of investors, policy makers, brokers, portfolio managers, etc.
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because almost every interesting financial decision revolves around the volatility in the
capital market. Investors always have some expectation from their investment decision
and wish to fill up the gap between expectations and actual return from the securities
they hold. They want to increase return with an expected level of risk. Risk is always
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associated with return. Investors seeking to avoid risk, for example, may choose to
adjust their portfolios by reducing their commitments to assets whose volatilities are
predicted to increase or by using more sophisticated dynamic diversification
approaches to predicted hedge volatility increase.
The arrival of new information always causes volatility in the stock market. If the
volatility is high, risk tends to go high. Volatility shows risk in returns. All investors are
heterogeneous in their nature and always take position as per their interpretations.
When all investors observe similar kinds of signal, good or bad, trading volume
relatively tends to go low because all investors have similar perceptions about the
trading volume of the stock. Whenever information is positive then stock price will
have upward movement and vice-versa. Therefore, analyzing volatility is essential to
knowing the seasonal and conditional movement in stock return. The objective
achievement of an investor thus depends upon the rationality behind stock market
volatility. Therefore, in order to grow, succeed and survive in this dynamic
environment, investors develop a certain basis regarding volatility which they must
choose for taking rational investment decisions. This contributes to the body of
knowledge by providing a holistic treatment to the subject of stock market volatility in
India and providing evidence on its main characteristic features with the help of
econometric techniques and employing GARCH models.
In S&P CNX Nifty returns, it is found that there is a negative mean in case of January
and October. In the other months namely February, March, April, May June, July,
August, September, November and December a negative mean is not present.
Therefore, this shows that negative returns are always associated with high volatility.
Moreover, high volatility is the indication of negative return. Standard deviation shows
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more volatility in case of October and January. It shows the deviations from the mean
values. Therefore, these two months are highly volatile, which is indicated by the
results of standard deviation. It highlights that festival and new years’ always have
impact on stock market. In S&P CNX Nifty volume, it is found that there is high
volume in case of January and October which again highlights the effect of New Year
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and Diwali and for the remaining ten months volume does not produce any significant
difference.
From both the indices it appears that the months of January and October have the
highest volatility in the period under study. Therefore, the results suggest that the
volatility in the Indian stock market exhibits the persistence of volatility and mean
revolving behaviour. Moreover, the study reveals that much of the movement in stock
market return volatility is explained by descriptive statistics. In general, volatility
seems to be of a persistent nature.
Fourth Research Objective
To analyze investors’ perceptions on the relationship between trading volume and
stock return volatility.
The analysis of trading volume and stock return volatility relationship in Indian stock
market is only one aspect of study. To know the investors, brokers, policy makers and
portfolio managers’ perception on the volatility in the stock market is considered to be
an important part towards meeting the gap between their expectation and the actual
position on the market. The present study carried out a survey to gather the opinion of
investors, brokers, portfolio managers, financial experts on the relationship between
trading volume and stock return volatility in India. For this a sensitive questionnaire
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was developed. Since study on this subject has never been done using primary data, the
present study framed the statements for the questionnaire from theory and review of
empirical studies related to the topic. 993 questionnaires were found fit for the data
analysis, which leads to a final sample size of 993. To make the current study holistic in
nature, data was collected from market participants of all demographic profiles.
Factor analysis was used to divide these statements into ten factors. The ten factors
which were extracted were named as importance of volume and return, perceived
information, cause-effect relationship, anxiety, risk management, projection, anomalies,
inclination,
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similarities or differences in their investors’ perceptions. A total of 993 respondents
were divided into five groups according to respondents’ age. The age of the
respondents ranges from 18 to 81 years old, with 10.5 percent between 18 to 25 years
old (n= 104), 25.3 percent between 25 to 35 years old (n=251), 34.1 percent between 35
to 50 years old (n=339), 24.2 percent between 50 to 70 years old (n=240) and 5.9
percent above 70 years old (n=59). This shows that the majority of respondents in the
first set are middle-aged. All respondents completely agree that trading volumes and
stock return have importance while making investment. There is no complete
agreement on the tactics they follow for making strategy regarding financial decisions.
It signifies that the respondents of different age groups have diverse views on ‘tactics’
and the perception of respondents of different educational groups is not different to a
large extent on “volume importance and return”, ‘perceive’, ‘information’, ‘anxiety’,
‘projection’, ‘inclination’, ‘cause-effect relationship’, ‘anomalies’ and ‘risk
management’ dimensions. Therefore, all respondents completely agree that causal

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relationships exist between trading volume and stock return volatility. Moreover, all
age groups of respondents agree that causal relationships exist between trading volume
and stock return volatility but their opinions do not strongly agree on such kind of
relationship. Some of the respondents in favour of one way causal relationship exist
between trading volume and stock return volatility. Rest of them are in favour of
bidirectional causal relationship exists between trading volume and stock return
volatility.
Education gives knowledge and a knowledgeable person becomes more aware and
concerned for the financial decision they make. Therefore, investors’ perceptions are
also influenced by education. The sample was divided into five educational categories
on the basis of the pilot study. In the sample, 3.07 percent respondents were educated
upto 12P
thP standard, 33.9 percent respondents were qualified upto graduation. Post
graduate respondents were 45.6 percent and only 15.6 percent were doctorates. After
analyzing the respondents’ responses on the basis of education groups, it has been
observed that most of the respondents have a graduation or post graduation
qualification. There is no complete agreement on three factors with respect to
education, ‘cause-effect relationship’, ‘risk management’ and ‘anomalies’ and the
perception of respondents of different educational groups is not different to a large
extent on ‘importance of volume and return’, ‘perceive’, ‘information’, ‘anxiety’,
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‘projection’, ‘inclination’ and ‘tactics’ dimensions. Investors have different kinds of
perceptions on volume cause returns, return cause volume, previous day volume cause
current return, previous day return cause current return. It shows that the investors’
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education level has an impact on their strategy regarding the causal relationship
between trading volume and stock return volatility. Perceptions on risk management
also differ as per the education level of the investors. Risk plays an important role for
getting return. It is directly associated with return. It shows that risk management
techniques of the investors change as per the change in their education level.
Respondents strongly disagree that volatility was also high in festival and other
occasions. The results also indicate that undergraduate respondents think festival and
seasons don’t have impact on increasing volatility while other respondents agree with
this. Moreover, the study has found that respondents of all education groups agree that
trading volume and stock return volatility have an importance while making investment
decisions. Therefore, volumes and returns are two important indicators for knowing the
capital market’s microstructure.
Investors’ investment is based on their income. Volume and frequency of earnings
influence the investment decision. Therefore, the monthly income of the respondents is
a vital component of investor’s demographics. It is recorded and categorized into six
groups. 10.5 percent (n=104) respondents earn less than twenty thousand rupees in a
month. 12 percent (119) respondents have monthly income between twenty to twenty
five thousands. 10.06 percent (105) earn between twenty five to thirty thousand rupees.
15.3 percent (152) earn between thirty to thirty five thousand rupees. 25 percent (248)
earn between thirty five to forty thousand rupees and remaining 26.7 percent (265)
respondents earn more than forty thousand rupees in a month. After analysing the data
it was found that respondents do not have the same kind of perception regarding
anxiety whereas the rest of the factors namely importance of volume and return,
perceive, information, cause-effect relationship, risk management, projection,

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anomalies, inclination and tactics do not show any significant difference in their
perception. So for only one dimension namely anxiety, income is contributing
significant variation among investors perception whereas there is no difference in the
opinion of investors regarding trading volume and stock return volatility relationship.
Moreover, the study has found that investors who have low incomes feel unsure and are
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worried and anxious about investment decisions. They have unstable preferences while
making investment decisions.
Occupation is an important determinant for analysis. Investor perceptions on trading
volume and stock return volatility is also affected by their occupation. Majority
(39.4%) of respondents are in private services followed by the respondents who were in
government services (25.9%), 24.6 percent were found engaged in any business activity
or profession and 3.6 percent were found associated with agriculture and remaining
(6.5%) categorized as any other who were either students or housewives. Scrutinizing
the results from the perspective of respondents’ occupation revealed that investors’
occupation does not bring any change in their opinion on volume and return, perceive,
cause-effect relationship, anxiety, risk management, projection, anomalies and tactics
importance. It highlights that respondents of all occupational groups agree that trading
volume and stock return volatility is important while making investment decisions.
Moreover, they all have the same kind of opinion regarding cause-effect relationships.
Respondents disagreed regarding information and inclination. The study also revealed
that it includes only business men and farmers who have different opinions; else the
combinations of other occupational groups were not noticeably different from each
other.
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Investors’ experience plays an important role in taking rational investment decisions.
Therefore, the respondents’ responses vary as per their experience. The experience of
participants ranges from 0 to 56 years, with 29.2 percent between 0 to 05 years (n=
290), 46.2 percent between 05 to 10 years (n=459), 16.9 percent between 10 to 15 years
(n=168) and 7.7 percent above 20 years (n=76). There is no complete agreement in case
of anxiety and perceive and for the remaining eight factors age does not produces any
difference in the opinion of the investors regarding trading volume and stock return
volatility. Moreover, the study has found that highly experienced investors don’t fear
while investing funds into the market. Therefore, they are fully confident about their
investment decisions.
In investment objective, 20.3 percent (n=202) want safety of principal, whereas 26.1
percent (n= 259) participants want to generate income. There are 25.4 percent
participants (n=252) want to accomplish particular investment goal, whereas 23.2
percent participants (n=65) want growth. There are 5.5 percent (n=50) participants have
any other objective. After examining the data it was found that investors’ investment
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objective does not bring any change in their opinion on the importance of volume and
return, perceive, information, cause-effect relationship, projection, anomalies,
inclination and tactics. This highlights that all respondents completely agree that
trading volume and stock return volatility are important while making investment
decisions. Moreover, they all have same kind of opinion regarding the casual
relationship between trading volume and stock return volatility. Respondents have
different kinds of perception regarding anxiety and risk management.
The natural demographic balance of male and female is reflected in the sample with
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73.9 per cent male (n=734) and 26.1 per cent female (n=259). After examining the data
it was found that male and female opinion on the dimension anxiety differs. Gender
does not bring any significant difference regarding the remaining dimensions namely
importance of volume and return, perceive, information, cause-effect relationship, risk
management, projection, anomalies, inclination and tactics. In case of respondents’
residence statuses, it was found that urban and rural respondents opinions have
significant variation for the information and inclination dimensions but when it comes
to the remaining dimensions investors’ responses do not have any significant variation.
It was found that there is no variation in the respondents’ responses on the basis of their
marital status.
Regression results exemplified that information is the most important dimension while
making decisions on trading volume and stock return volatility importance, followed by
risk management, perceive, anxiety, projection, anomalies and inclination. All above
dimensions influence investors’ perceptions on trading volume and stock return
volatility importance. Therefore, the importance of trading volume and stock return is
associated with risk management, anxiety, anomalies, etc.
Risk management is the most important aspect which influences investors’ perceptions
on the cause-effect relationship, followed by projection and tactics. Negative
coefficients for information show that investors’ decisions are affected by information.
Negative coefficients for anxiety show that when investors have low anxiety then they
will perceive casual relationship. Moreover, when investors have high anxiety then they
will not show interest in the casual relationship. Therefore, when investors’ don’t have
a stable mind then it is negatively affecting investors’ perceptions on the causal
relationship between trading volume and stock return. So results show that risk, tactics,
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projections and information will exhibits higher impact on cause-effect relationships
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between trading volume and stock return volatility i.e., that investors will exhibits
higher tendency towards a cause-effect relationship.
6.3 Suggestions
After completing all the analysis and highlighting the major results that are emerging
out of the study, this current section strives to suggest some innovations on the basis of
the study’s findings for making the bridge between their perceptions and actual
relationship exist between trading volume and stock return volatility in Indian stock
market. These innovations are made on the basis of the identified difference between
investors’ opinion and the actual relationship which exists between trading volume and
The result is summarized in the form of suggestions as under:
1. Investors, brokers, portfolio managers should accept and adopt some strategies for
making investment decision in order to achieve maximum return at expected level
of risk from the securities held by them. The field of trading volume and stock
return volatility is universal and has to be adopted by all kind of investors
irrespective of their size, experience, income, etc. The relevance of trading volume
and stock return volatility should not be ignored as it is the only way through which
an investor can grow, succeed and survive in this dynamic environment. Investors,
brokers, portfolio managers must understand trading volume and stock return
volatility is not just for investment, on the contrary, it is a way of getting
speculative profit from their investment. Speculative profit means which we get in
short run due to volatility in stock market.

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2. There is no causal relationship exists between previous day’s volume to current
return and previous day’s return to current volume. A causal relationship exists
between previous day’s return to current return. Moreover, a causal relationship
exists between current returns to current volume but the relationship does not exist
between current volumes to current returns. Therefore, returns contain significant
information for volume but volume does not contain significant information for
return. So it is suggested that investors, brokers and portfolio managers may use
current return for predicting current volume and previous day’s return for predicting
current return. Therefore, current return and current volume may be predicted only
through aforementioned indicators. They should not follow other indicators for
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predicting the current return and current volume because there is no causal
relationship exists among them.
3. All respondents completely agree that trading volumes and stock return both have
importance while making investment decisions. The perceptions of respondents of
different groups are not different to a large extent regarding the importance of
trading volume and stock return volatility, and a causal relationship exists between
trading volume and stock return volatility. Moreover, all groups of respondents
agree that a causal relationship exists between trading volume and stock return
volatility but their opinions do not strongly agree on such kind of relationship.
Mean of current return always cause current volume and current volume always
cause current returns is 3.15. Mean of previous day’s volume always cause current
return is 3.04 and in case of previous day’s return always cause current volume is
3.38. It indicates that market participants give more importance to previous day’s
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return and less importance to previous day’s volume. They have the same opinion
on the causal relationship between current return and current volume. Therefore, it
shows that investors, brokers and portfolio managers have equal perceptions
towards the aforementioned relationship but actually this does not exist. Therefore,
it can be concluded that investors should change their perceptions for getting high
return with expected level of risk. They should follow different kind of strategies
for different investment decisions. They should use return and previous day’s return
for predicting current volume and current return. Therefore, the gap exist between
the actual relationship exist between trading volume and stock return volatility and
their perceptions towards trading volume and stock return volatility. They should
try to make a bridge between their perceptions and the actual relationship existing
between trading volume and stock return volatility. Therefore, they can achieve
expected levels of return with the minimum risk.
4. All kind of investors give importance to trading volume and stock return volatility
for taking rational investment decisions but they do not follow the right directions.
So it is suggested that investors should conduct a comprehensive analysis in order
to have a true picture of the complex environment.
5. The seasonality aspect of stock market cannot be ignored. There was a negative
mean in case of January and October. The other months namely February, March,
April, May June, July, August, September, November and December do not show
negative returns. Therefore, it shows that negative return is always associated with
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high volatility. Moreover, high volatility is the indication of negative return.
Standard deviation shows more volatility in case of October and January. It shows
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the deviations from the mean values. Therefore, these two months are highly
volatile, indicated by the results of standard deviation. This highlights that festivals
and new years’ always have impact on the stock market. In S&P CNX Nifty
volume, it is found that there is high volume in case of January and October which
again highlights the effect of New Year and Diwali and for the remaining ten
months volume does not produce any significant difference. Therefore, it is
suggested that investors should consider month of the year volatility in the stock
market. They should be more aware in January and October while making
6. From both indices it appears that the months of January and October have the
highest volatility in the period under study. Therefore, the results suggest that the
volatility in the Indian stock market exhibits the persistence of volatility and mean
revolving behaviour. Moreover, the study reveals that much of the movement in
stock market return volatility is explained by the descriptive statistics. In general,
volatility seems to be of a persistent nature. Investors should be aware about all
kinds of volatility which exists in stock market. They should analyze their
investment objective for the purpose of achieving objectives with expected level of
risk.
7. Trading volume and stock return volatility are the two major pillars of the stock
market through which investors can understand the whole structure of the capital
market. The investors must understand that it is not enough to blindly follow an
investment decision making process. Investors should also keep a check on real
time changes in situation like festivals, new years, recession, etc. which normally
finds many of the investors unprepared. Also, investors should work to improve
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their understanding of the model on trading volume and stock return volatility.
They should not follow the direction of others.
8. Success of an investor is dependent upon the understanding of trading volume and
stock return volatility. Investors should incorporate a strong base when they make
an investment decision. Strategies may be followed by all kinds of investors with
the view of creating a bridge between their expected return and actual return from
the securities they hold. Overall the concept of trading volume and stock return
volatility should be incorporated while making investment decisions.
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9. Undoubtedly, investors are most responsible for the success and failure to achieve
the investment objective. Investors may be individual or institutional, brokers,
portfolio managers, and should be clearly aware of their investment objective. They
should also consider the expected level of risk which they expect from their
investment. They should also consider the changing requirement of their
investment. A willingness and eagerness to consider new information, new
viewpoints, new ideas and new possibilities are essential. Another area of concern
is essential, which should be considered at the time of investment. Each level of
investment should be well-cleared about investment objectives, direction of
investment and progress toward achieving one’s objective.
10. The investor should avoid ‘All Strategies for All kind of Investment Decisions’.
Investors may avoid making the critical mistake of going for too many investment
strategies at a given point of time. Keeping in view the long-term success, investors
should read news papers and try to keep as informed as possible. Most individual
investors still believe that they only have to do what is required in order to achieve
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their objectives. All possible investment outcomes have to be understood return at
the expected level of risk has to be increased.
11. Although the present study highlights only trading volume and stock return
volatility, there are lots of other indicators that require investor attention. Investors
may consider the views of financial experts who are posing challenges to the Indian
stock market. Investors should give stress on previously ignored issues regarding
trading volume and stock return volatility. Investors are realizing that it is foolish to
blindly follow others. Understanding the changing investment issues may help the
investors in taking better decisions.
12. Understanding volatility in stock return and its relationship with trading volume is
the foundation of every successful investor. Investors should understand the actual
volatility in asset return series and its relationship with trading volume. Moreover,
investors should also analyze their business environment comprehensively.
Although the investors are aware of external and internal factors affecting
investment decisions, more focus is given to limited external and internal factors.
Therefore, it is suggested that investors may conduct a comprehensive investment
situational diagnosis in order to have a true picture of the complex environment. So
investors, especially individual investor should consider trading volume and stock
return volatility seriously and ensure that they strongly follow it.
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13. For effective investment, investors in the capital market should be more focused on
investment objective. Retail investors are more active in investing their fund into
the market as compared to institutional investors and proprietary investors.
However, they are governed by emotions and evaluate returns using shorter and
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shorter intervals without any policy statement (Benos, 1998; Odean, 1998; Wang,
2001). Most of these investors lack knowledge and take the advice of financial
advisors and lose money in the process. It is, therefore, suggested that they should
try to identify the gap between their perceptions’ on trading volume and stock
return volatility, and the actual relationship that exists between trading volume and
stock return volatility. The majority of Indian retail investors lost money due to
their investment in stock market. As a result, they have again started shifting to
safer avenues of savings in banks which has further increased the dominance of
banks in India. Returns of retail investors are the key to the Indian stock market’s
development. The investors need long term capital gains to invest in the markets. A
lot of efforts are required to instill the trust and confidence in them so as to ensure
the well functioning of the markets. Our survey also supports this view.
14. Trading strategies of individual investors should be different from those of
institutional investors for accomplishing the objective of investment. Individual
investors are necessary to test many important theories, more attention needs to be
devoted to developing appropriate methods of studying them.
6.4 Concluding Remarks
Based on the findings, the study concludes that a significant one way relationship exists
between trading volume and stock return volatility. Overall, trading volume and stock
return volatility indicators play an important role while making investment decision.
With the help of these two indicators we may know the transparent map of the capital
market. But there is a gap that exists between the actual relationship between trading
volume and stock return volatility and the perceptions of investors on such kind of
relationship. Second aspect is the seasonality effect that should be considered while
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making an investment decision. Investors should try to estimate the volatility in January
and October.
149
Figure 6.1 Investors’ perceptions on trading volume and stock return volatility
and the actual relationship existing between trading volume and stock
return volatility.
6.5 Research Implication
Given the anticipated high growth of the economy and increasing interest of foreign
investors towards the country, it is important to understand the pattern of stock market
volatility in India which is time-varying, persistent, and predictable. This may helps in
diversify international portfolios and formulate hedging strategies. Investors, Policy
makers, Portfolio managers, Brokers, Academicians and Regulators alike are now
intensively focused upon understanding the volatility of asset returns and its
relationship to trading volume. The various GARCH models provide good forecasts of
volatility and are useful for portfolio allocation, performance measurement, option
Relationship between
Trading Volume and Stock Return Volatility in Indian Stock Market Gap exist between actual
relationship and Investors’ Perceptions on Trading Volume and Stock Return Volatility in Indian
Stock Market Investors’ Perceptions on Trading Volume and Stock Return Volatility in Indian Stock
Market Increase Investors understanding on the relationship between Trading Volume and Stock
Return Volatility in Indian Stock Market Returns contain significant information for Volume but
Volume does not contain significant information for Return January and October months are highly
volatile and have negative Returns Increase Profits at expected level of Risk 150
valuation, etc. It has been observed that a more serious view is taken at the time of
investment in comparison to subsequent phases. Retail investors are the biggest part of
investors when talking about national development. Investment strategies are adopted

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to a great extent but in several cases it is observed that the desired returns are not
achieved due to volatility in the market. There is a need to improve investment decision
making at all phases of investment for enhancing effective returns. The effectiveness of
an investor’s decision can further improve if the investor increases the level of focus
and understanding on the relationship between trading volume and stock return
volatility.
The comparison of investors’ perceptions on trading volume and stock return volatility,
and actual relationship exists between trading volume and stock return volatility is
necessary for taking rational investment decisions. There is a gap between investors’
perceptions and the actual relationship existing between trading volume and stock
return volatility. Investors lack knowledge and awareness on the relationship between
trading volume and stock return volatility. They are trading as speculators where they
more often lose money than gain. The returns can be estimated by volume but due to
the lack of proper education, awareness and knowledge of the relationship between
trading volume and stock return volatility, the desired volumes resulting into profitable
activity is yet to occur. It is, therefore, suggested that investors should have knowledge
on the relationship between trading volume and stock return volatility for
accomplishing their desired objectives. Our study also provides concrete evidence on
volume-return relationship in Indian market. An aware investor will be better equipped
to take risk and benefit from participating in the stock market.
Although our government is spending vast sums of money on research in financial
markets, retail investors do not understand complex models that the researches talk
about. Research in the field of investor education should be promoted. This will also
help in increasing the investor base in India which is currently minimal compared to
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develop countries. As mentioned earlier, our study gives evidence of trading volume
and stock return volatility in the Indian stock market. Investors can take better
advantage after knowing the actual relationship that exists between trading volume and
151
6.6 Limitations of the Study
The study has concentrated on trading volume and stock return volatility in Indian
stock market along with investors’ perceptions on trading volume and stock return
volatility.
Second, S&P CNX Nifty and Sensitive Index (SENSEX) are considered as
representative indexes of the Indian stock market because the turnover of National
Stock Exchange is higher as compared to other stock exchange markets. Moreover
Bombay Stock Exchange is the premier stock exchange of India. The study does not
cover individual stocks due to it becoming unwieldy and requiring much more time.
Further, index being aggregative and representative in its nature, the usefulness of the
study does not get much affected by not taking individual stocks into consideration.
Third, primary data was collected through a structured questionnaire given to the
investors, brokers, policy makers and portfolio managers involved in the study. The
researcher had an intention to reach a larger sample but paucity of time, the attitude of
investors, brokers, policy makers and portfolio managers from the capital market
towards research resulted in limiting the size of sample to the present one. As the study
is also based upon primary data, the possibility of personal bias of the respondents
cannot be ruled out.
Fourth, the study uses only daily data and does not use high frequency data. The study
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undertaken, however, unique as no comprehensive study of this nature covering such a
long period making a detailed analysis seems to have been undertaken by any other
research scholar.
6.7 Agenda for Future Research
In India, the status of research in the trading volume and stock return field is still at its
nascent stage. It is also felt that foreign researchers have made maximum contribution
to the field of trading volume and stock return volatility, whereas in India, there is
ample scope for further research. The present study has mainly explored the
relationship between trading volume and stock return volatility along with investors’
perceptions on such relationship issues between these variables in depth. The modelling
effort in the present study is mainly exploratory, revealing many possible extensions for
future research. The areas for further research include, for example, the following:
152
1. The study has analyzed the relationship between trading volume and stock
return volatility by taking S&P CNX Nifty and Sensitive Index (SENSEX) as
proxy for the market. The relationship study can further be evaluated on various
sectors by using sectoral indices. One study can be carried out to examine the
election affect on the volatility of the stock market. Moreover, the volatility
relationship can be examined with political changes. Volatility was very high in
May, 2014 during the election of Lok Sabha in India.
2. This empirical research can be further expanded by selecting and analyzing high
frequency intra-day data and inclusion of additional economic variables in the
GARCH conditional variance equation. Multivariate GARCH can also be
employed for this purpose.

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3. Trading hours, in India should be increased to facilitate alignment of Indian
market with international market for better assimilation of any economic
development in the global market. For example, a longer market is necessary to
know the status of market demands for new global products, export of Indian
products by foreign exchanges, easing of foreign investment by RBI, etc. The
extension of trade timings will not only increase cross-country trade but will
also reduce end of the day volatility, i.e., volatility generated after the closing of
markets in India and their opening on the next day, on account of foreign
markets that are open during this time. Further research can be carried out to
find a suitable extension of these timings.
4. A comparative study can be carried out between the Indian and international
stock markets. Research can also be carried out to identify the investors’
perceptions at an international level. Through the present study, an attempt has
been made to provide a direction, which may be followed to reach new
milestone in trading volume and stock return volatility.

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5.1 CONCLUSION
Investors always have expectation of some positive rate of return. They always try to
accomplish the higher return with lower risk. Therefore, to achieve this objective they
observe market continuously. Based on their perception they carefully plan, evaluate and
allocate funds in various investible instruments, which offer safety of principal and
continuous return. Investment in equity shares is one of the avenues which offer greater
benefits, along with higher risks (Bharathi, 2009). Investors’ perception is defined as the
process by which an investor selects, organizes, and interprets market data into meaningful
information. Two investors if exposed to the same stock market under the same apparent
condition, but how each person recognizes, selects, organizes, and interprets these market
is a highly individual process base on each person’s own needs, experience, and
expectations. To know the influence that each of these variables on the investment decision
is very important for every investor.
However, we will examine some of the basic concepts that highlight the perceptual
process in context of investor behaviour. Investors act and react on the basis of their
perceptions, not on the basis of objective reality. For each investor, reality is a totally
personal phenomenon, based on that person’s needs, wants and personal experiences. Thus,
investors’ perceptions are much more important than their knowledge of objective reality.
For if one thinks about it, it’s not what actually so is, but what investors think is so, that
affects their actions, their investment, their reinvestment and so forth and because investor
make decision and take actions based on what they perceive to be reality, it is important to
understand the whole notion of perception and its related concepts to more readily
determine what factors influence investors’ investment decision.

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Poterba and Summers (1986) and Campbell and Hentschel (1992) present the volatility
feedback hypothesis, where any innovations to volatility (especially positive ones) lead to a
decrease in returns. The leverage hypothesis has few supporters (see e.g. Low, 2004),
while the volatility feedback hypothesis involves a complicated economic process that
passes through expectations and dividends to validate the negative relationship and only
(weakly) explains the long term return–volatility relationship.
85

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5.2 Methodology and Results
5.2.1 Sampling and Data Collection
The study was conducted using convenience sampling making the overall sampling
criteria. Strict statistical sampling cannot be applied in selecting the respondents here as
we did not had exhausted list of investors. In such cases, Cadler, Phillips and Tybout
(1981) advocated the use of convenience sampling keeping in mind the important
dimensions of the market participants. The present study is based on empirical analysis
of investors’ perceptions on the relationship between trading volume and stock return
volatility. The current study is based on the primary data. The respondents of this study
are investors, brokers, portfolio managers, financial experts in India. A total of 1100
questionnaires were distributed in these areas. 993 questionnaire were found fit for the
data analysis, which leads to final sample size of 993. To make the current study
holistic in nature, data were collected from the market participants of all demographic
profiles.
5.2.2 Questionnaire formulation
Table 5.1: List of Variables regarding Investors’ Perceptions
S. No. Statements
V01 I get unsure by the views of financial experts.
V02 I am anxious about financial and money affairs.
V03 After making a decision, I am anxious whether I was right or wrong.
V04 I read the business section of the newspaper attentively.
V05 I like to join conversations about financial matters.

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V06 I see the volume when I take decisions about investment.
V07 I see the returns when I take decisions about investment.
V08 Market participants are aware of all kinds of relationship between trading
volume and stock return volatility.
V09 Trading volume and stock return volatility help in determining future
price.
V10 Majority of market participants invest in market to earn quick money.
V11 Volume always higher in the month of October.
V12 Volumes always lower in the month of March.
V13 I see the relationship between trading volume and stock return when I take
decisions about investment.
V14 Trading volume and stock returns are two major pillars of the stock
market which have explanatory power to provide the transparent map of
86

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the microstructure of the capital market.
V15 Volatility always creates challenging environment because almost every

interesting financial decision revolves around the volatility in the capital
market.
V16 Arrival of new information always causes the volatility in stock market.
V17 Managing risks in the stock market is difficult task because it has
movement as per the information flows into the market.
V18 It is very important to know the relationship between trading volume and
stock return volatility in stock markets for shifting the position as per the
movement of market.
V19 I have some expectation from my investment decision and wish to fill up
the gap between expectations and actual return from the securities.
V20 The dependence of return on past returns, past volume and current volume
always raise questions for me.
V21 I always take position as per my understanding about the market.
V22 Analyzing the stock return and trading volume is essential to know the
causal relationship between these two indicators.
V23 In order to succeed, grow and survive, I have to adopt various strategies
regarding trading volume and stock return volatility.
V24 A good knowledge of the relationship between trading volume and stock
return is necessary for gaining profit in the era of globalization.
V25 Current returns always cause current volume.
V26 Current volume always causes current returns.
V27 Previous day volume always causes current returns.

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V28 Previous day returns always cause current volume.
V29 A large positive or large negative return lead future forecasts of the
variance.
V30 I follow others or depend on the directions of others when I invest my

fund into the market.
V31 I look at investment prepositions and apply my own judgment while

investing.
V32 I prefer to invest in domestic market.
V33 I dislike ambiguous situations where I feel that I am not in a better

position than others to evaluate investment in a given stock.
V34 I traded on the basis of superior information about the market but earned
lower return.
V35 I feel regret when I realize a loss and stock prices rise subsequently.
V36 I feel pride when I realize a gain and so sell the winners.
V37 I understand that in order to achieve higher returns, it is necessary to take

some risk.
(Source: Primary Data)
87

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A pool of 41 simple understandable statements relating to investors’ perceptions on the

relationship between trading volume and stock return volatility was constructed, so that
their response on the same could be measured. These 41 statements were brain stormed
and out of these 41 statements 37 were finalized for the current study, which were
relating to measure investors’ perceptions on the relationship between trading volume
and stock return volatility. Participants were first asked to give their self-assessment by
answering 37 questions on their of investors’ perceptions on the relationship between
trading volume and stock return volatility shown in Table 5.1. The response format is a
five-point-Likert-type scale with “strongly disagree” and “strongly agree” at the two
ends of the question spectrum. Only essential variables were kept in the questionnaire
and number of items in scale was kept below 50 as asking too much from respondents
may give rise to unwillingness or inability of responding. As recommended by
Malhotra (2008), sensitive questions like income and demographics were kept in the
second part of questionnaire.
5.2.3 Demographic Analysis
Table 5.2: Demographic Profile of the Respondents
Demographics Frequency Proportion of the sample (%)
Male 734 73.9

Gender
Female 259 26.1
Total 993 100.0
18-25 104 10.5
25-35 251 25.3

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35-50 339 34.1
Age
50-70 240 24.2
Above 70 59 5.9
Total 993 100.0
Up To 12 th
P
37 3.7
Graduation 337 33.9

Education
P.G. 453 45.6
Doctorate 155 15.6
Any other 11 1.1
Total 993 100.0
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0-20,000 (Rs)
Generate Income
20,000-25,000 (Rs)
Per Month
Achieve Particular
25,000-30,000 (Rs)
Investment Goal
30,000-35,000 (Rs)
Investment
Growth
Income
35,000-40,000 (Rs)
Any Other
Above 40,000
Total
Total
Govt. Services (Source: Primary Data)
Private Services
Occupation
Agriculture
Business
Any Other
Total
Urban
Residence
Total
Rural
MaritalStatus
Married
Unmarried
Total
0-5 yrs
InvestmentExperie
5-10 yrs
nce
Above 20 yrs
10-15 yrs
Total
Object
Safety of the Principal

ives

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104 10.5 230 23.2
119 12.0 50 5.0
105 10.6 993 100.0
152 15.3
248 25.0
265 26.7
993 100.0
257 25.9
391 39.4
36 3.6 89
244 24.6
65 6.5
993 100.0
849 85.5
144 14.5
993 100.0
849 85.5
144 14.5
993 100.0
290 29.2
459 46.2
168 16.9
76 7.7
993 100.0
202 20.3
259 26.1
252 25.4

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Table 5.2 delineates the demographic profile of the respondents. Total sample size is
993. Age, gender, educational qualification, occupation and monthly household

income constitute the demographic profile of the respondents. Demographic profile of
respondents was analyzed using frequency distribution. Although not every member of
the population is equally likely to be selected, the sample is composed of a wide variety
of backgrounds. The diversity came from such groups as participants in a study relating
to financial literacy, and from different sources such as a brokers, investors, finance
students, a group of finance teachers, etc.
Investors’ perceptions changes with according to their age. Therefore, the persons of
different age groups depict different kind of perception. Hence, it is of paramount
importance to study the perception of different age groups and try to understand the
similarities or differences in their investors’ perceptions. The age of participants ranges
from 18 to 81 years old, with 10.5 percent between 18 to 25 years old (n= 104), 25.3
percent between 25 to 35 years old (n=251), 34.1 percent between 35 to 50 years old
(n=339), 24.2 percent between 50 to 70 years old (n=240) and 5.9 percent above 70
years old (n=59).
The natural demographic balance of male and female is reflected in the sample with
73.9 per cent male (n=734) and 26.1 per cent female (n=259). Investors’ perceptions
are also influenced by education. Education gives knowledge and a knowledgeable
person becomes more aware and concerned for the investment. The sample is divided
into five educational categories on the basis of the pilot study. In the sample, 3.07
percent respondents were educated upto 12 th standard, 33.9 percent respondents were
P P
qualified upto graduation. Post graduate respondents were 45.6 percent and doctorates
were only 15.6 percent.

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any other objective.
Investors experience play important role for taking rational investment decisions. The
experience of participants ranges from 0 to 56 years, with 29.2 percent between 0 to 05
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years (n= 290), 46.2 percent between 05 to 10 years (n=459), 16.9 percent between 10
to 15 years (n=168) and 7.7 percent above 20 years (n=76).
Occupation is an important determinant for analysis. Investor perception on trading

or profession and 3.6 percent were found farmers and remaining (6.5%) categorized as
any other who were either students or housewives.

respondents earn more than forty thousand rupees in a month.
5.2.4 Factor Analysis
Most practiced index of internal consistency in social sciences researches on multi-item

measures, the cronbach’s alpha (Schmitt, 1996) was used to check reliability in present
study. To bring down the statements to manageable level of dimensions, factor analysis
using principal components method of factor extraction with varimax rotation was
used. Besides these techniques, mean, variance, standard deviation was calculated and
used at various stages of data analysis. All the 37 statements of questionnaire were
subjected to alpha test of reliability; the cronbach’s alpha statistic for 37 statements was
showing that scale is reliable.

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Investors’ perceptions on the relationship between trading volume and stock return
volatility was assessed through factor analysis. The application of factor analysis
resulted in to 10 dimensions concerning investors’ perceptions towards the relationship
between trading volume and stock return volatility. Principal component factor analysis
with Varimax rotation and Kaiser Normalization resulted into ten factor solution with
Eigen value more than 1. These factors explain 63.79 percent of total variance.
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The value of KMO measure of sampling adequacy comes out to be 0.828 and Bartlett’s
test of sphericity was found to be significant, depicting that factor analysis can be
applied on this data. Factor analysis with principal component analysis and varimax
rotation was applied to find out the required dimensions. Principal component analysis
was used because the dimensions produced by factor analyses were to be further
subjected to multivariate analysis. The basis for factors extraction was kept as the eigen
value of 1.0 and rotated factor loading of at least 0.30 which is desirable (Costello and
Osborne, 2005). Principal component analysis extracted 10 factors explaining
approximately 63.79 per cent of variance.
Table 5.3: Communalities
Statements
I get unsure by the views of financial experts. 1.000 .700
I am anxious about financial and money affairs. 1.000 .726
After making a decision, I am anxious whether I was right or wrong. 1.000 .733
I read the business section of the newspaper attentively. 1.000 .580
I like to join conversations about financial matters. 1.000 .627
I see the volume when I take decisions about investment. 1.000 .558
I see the returns when I take decisions about investment. 1.000 .528
Market participants are aware of all kinds of relationship between trading 1.000 .677
volume and stock return volatility.
Trading volume and stock return volatility help in determining future price. 1.000 .652

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Majority of market participants invest in market to earn quick money. 1.000 .641
Volume always higher in the month of October. 1.000 .741
Volumes always lower in the month of March. 1.000 .751
I see the relationship between trading volume and stock return when I take 1.000 .615
Trading volume and stock returns are two major pillars of the stock market
which have explanatory power to provide the transparent map of the 1.000 .793
microstructure of the capital market.
Volatility always creates challenging environment because almost every 1.000 .662
interesting financial decision revolves around the volatility in the capital market.
Arrival of new information always causes the volatility in stock market. 1.000 .573
92

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Managing risks in the stock market is difficult task because it has movement as 1.000 .587
per the information flows into the market.
It is very important to know the relationship between trading volume and stock
return volatility in stock markets for shifting the position as per the movement of 1.000 .630
market.
I have some expectation from my investment decision and wish to fill up the gap 1.000 .539
between expectations and actual return from the securities.
The dependence of return on past returns, past volume and current volume 1.000 .587
always raise questions for me.
I always take position as per my understanding about the market. 1.000 .622
Analyzing the stock return and trading volume is essential to know the causal 1.000 .604
relationship between these two indicators.
In order to succeed, grow and survive, I have to adopt various strategies 1.000 .600
regarding trading volume and stock return volatility.
A good knowledge of the relationship between trading volume and stock return 1.000 .673
is necessary for gaining profit in the era of globalization.
Current returns always cause current volume. 1.000 .540
Current volume always causes current returns. 1.000 .635
Previous day volume always causes current returns. 1.000 .553
Previous day returns always cause current volume. 1.000 .675

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A large positive or large negative return lead future forecasts of the variance. 1.000 .529
I follow others or depend on the directions of others when I invest my fund into 1.000 .605
the market.
I look at investment prepositions and apply my own judgment while investing. 1.000 .672
I prefer to invest in domestic market. 1.000 .555
I dislike ambiguous situations where I feel that I am not in a better position than 1.000 .661
others to evaluate investment in a given stock.
I traded on the basis of superior information about the market but earned lower 1.000 .679
return.
I feel regret when I realize a loss and stock prices rise subsequently. 1.000 .769
I feel pride when I realize a gain and so sell the winners. 1.000 .659
I understand that in order to achieve higher returns, it is necessary to take some 1.000 .673
risk.
(Source: Primary Data)
93

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Table 5.3 shows the communalities before and after extraction. Principal component
analysis works on the initial assumption that all variance is common; therefore before
extraction the communalities are all ‘1’. The communalities in the column labelled
extraction reflect the common variance in the structure. So, from the table of
communalities, we can have the first variable (i.e. I get unsure by the views of financial
experts) showing the variance of 70%. Another way to look at these communalities is in
terms of the proportion of variance explained by the underlying factors. After extraction
some of the factors may get discarded and so some information is lost. The amount of
variance in each variable that can be explained by the retained factors is represented by
the communalities after extraction.
Table 5.4: Total Variance of Dimensions
Component
s Initial Eigenvalues Extraction Sums of Rotation Sums of
Squared
Squared Loadings Loadings
% of Cumulative % of Cumulative % of Cumulative
Total Variance % Total Variance % Total Variance %
10.318 27.887 27.887 10.318 27.887 27.887 4.264 11.524 11.524
2 2.177 5.883 33.769 2.177 5.883 33.769 2.546 6.882 18.406
3 2.100 5.675 39.444 2.100 5.675 39.444 2.476 6.692 25.098
4 1.617 4.371 43.816 1.617 4.371 43.816 2.299 6.213 31.311
5 1.398 3.779 47.594 1.398 3.779 47.594 2.255 6.094 37.405
6 1.358 3.670 51.264 1.358 3.670 51.264 2.116 5.719 43.124

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7 1.257 3.397 54.662 1.257 3.397 54.662 2.043 5.520 48.644
8 1.164 3.147 57.809 1.164 3.147 57.809 1.972 5.331 53.975
9 1.142 3.088 60.896 1.142 3.088 60.896 1.818 4.914 58.890
10 1.071 2.895 63.791 1.071 2.895 63.791 1.813 4.901 63.791
11 .975 2.634 66.425
12 .923 2.496 68.921
13 .899 2.430 71.351
14 .812 2.196 73.547
15 .774 2.092 75.638
16 .725 1.959 77.597
17 .704 1.903 79.500
18 .671 1.814 81.315
19 .637 1.723 83.037
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20 .577 1.558 84.596
21 .562 1.519 86.115
22 .522 1.412 87.527
23 .513 1.387 88.913
24 .430 1.163 90.076
25 .414 1.119 91.195
26 .392 1.060 92.254
27 .368 .994 93.248
28 .356 .962 94.210
29 .335 .906 95.116
30 .323 .872 95.989
31 .308 .832 96.821
32 .254 .686 97.506
33 .239 .647 98.153
34 .216 .584 98.737
35 .180 .487 99.223
36 .173 .468 99.692
37 .114 .308 100.000
Source: Primary Data

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Extraction Method: Principal Component Analysis.
Kaiser-Meyer-Olkin Measure of Sampling Adequacy = 0.828
The output in Table 5.4 lists the eigen values associated with each linear variable before
extraction and after extraction. Before extraction, SPSS has identified 37 linear
components within data set. The eigen values associated with each factor represent the
variance explained by that particular linear component and SPSS also displays the
eigen value in terms of the percentage of variance explained ( so, factor 1 i.e.,
Importance of volume and return has 11.52% of total variance). It is clear from the
above table that the first few factors explain relatively large amount of variance
whereas subsequent factors explain only small amounts of variance. SPSS then extracts
all variables with eigen values greater than 1, which leaves us with ten factors. The
eigen value associated with these factors are again displayed (and the percentage of
variance explained) in the columns labelled extraction sums of squared loading. The
values in this part of the table are the same as the values before extraction, except that
the values for the discarded factors are ignored (hence, the table is blank after the ten
factors).
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Table 5.5: Rotated Component Matrix
Statements 1 2 3 4 5 6 7 8 9 10
I get unsure by the views of

.681
financial experts.
I am anxious about financial and

.795
money affairs.
After making a decision, I am
anxious whether I was right or .677
wrong.
I read the business section of the

.308 .383 .486
newspaper attentively.
I like to join conversations about

.648
financial matters.
I see the volume when I take

.454 .400
I see the returns when I take

.396 .501
Market participants are aware of
all kinds of relationship between

.318 .684
trading volume and stock return
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volatility.
Trading volume and stock return
volatility help in determining .734
future price.
Majority of market participants
invest in market to earn quick .358 .377 .359 .391
money.
Volume always higher in the

.799
month of October.
Volumes always lower in the

.776
month of March.
I see the relationship between
trading volume and stock return

.624 .309
when I take decisions about
investment.
Trading volume and stock

returns
are two major pillars of the

stock
market which have explanatory

.693 .331 .334
power to provide the transparent
map of the microstructure of the
capital market.

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Volatility always creates
challenging environment
because
almost every interesting

financial .488 .407
decision revolves around the
volatility in the capital market.
Arrival of new information

always
causes the volatility in stock .386 .440 .308
market.
Managing risks in the stock
market is difficult task because

it
.674
has movement as per the
information flows into the

market.
It is very important to know the
relationship between trading
volume and stock return

volatility
.678
in stock markets for shifting the
position as per the movement of
market.
I have some expectation from

my
investment decision and wish to

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fill up the gap between .482 .307 .326
expectations and actual return
from the securities.
The dependence of return on

past
returns, past volume and current

.325 .363
volume always raise questions
for
me.
I always take position as per my

.516 .418
understanding about the market.
Analyzing the stock return and
trading volume is essential to

.313 .546
know the causal relationship
between these two indicators.
In order to succeed, grow and
survive, I have to adopt various

.363 .427 .379
strategies regarding trading
volume and stock return

volatility.
A good knowledge of the
relationship between trading
volume and stock return is .452 .512 .389
necessary for gaining profit in

the

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era of globalization.
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Current returns always cause

.574
current volume.
Current volume always causes

.773
current returns.
Previous day volume always

.323 .576
causes current returns.
Previous day returns always

cause
.788
current volume.
A large positive or large

negative
return lead future forecasts of

the .596
variance.
I follow others or depend on the
directions of others when I

invest .710
my fund into the market.
I look at investment prepositions
and apply my own judgment

while .662 .360
investing.
I prefer to invest in domestic

.596
market.

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I dislike ambiguous situations
where I feel that I am not in a
better position than others to .671
evaluate investment in a given
stock.
I traded on the basis of superior
information about the market

but .533 .336 .321
earned lower return.
I feel regret when I realize a loss

.812
and stock prices rise
subsequently.
I feel pride when I realize a gain

.621 .330
and so sell the winners.
I understand that in order to
achieve higher returns, it is .675
necessary to take some risk.
Table 5.5 shows the rotated component matrix which is a matrix of the factor loadings
for each variable onto each factor. This matrix contains the same information as the
component matrix except that it is calculated after rotation. After rotation of the
variable all the variable are loaded onto group that is called factor.

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Table 5.6: Profiling of Investors’ Perceptions towards the relationship between

Trading Volume and Stock Return Volatility
Variable Factor and Variables Factor

Number loading
(R1) Importance of volume and return (Cronbach’s α= .831)
V09 Trading volume and stock return volatility help in determining .734
future price.
V14 Trading volume and stock returns are two major pillars of the
stock market which have explanatory power to provide the .693
transparent map of the microstructure of the capital market.
V18 It is very important to know the relationship between trading

volume and stock return volatility in stock markets for shifting .678
the position as per the movement of market.
V13 I see the relationship between trading volume and stock return .624
when I take decisions about investment.
V15 Volatility always creates challenging environment because

almost every interesting financial decision revolves around the .488
volatility in the capital market.
V06 I see the volume when I take decisions about investment. .454
V19 I have some expectation from my investment decision and wish

to fill up the gap between expectations and actual return from .482
the securities.
Perceive (Cronbach’s α=.721)
V37 I understand that in order to achieve higher returns, it is

.675
necessary to take some risk.
V31 I look at investment prepositions and apply my own judgment

while investing. .662
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V05 I like to join conversations about financial matters. .648
V21 I always take position as per my understanding about the .516

market.
V07 I see the returns when I take decisions about investment. .501
Information (Cronbach’s α=.745)
V30 I follow others or depend on the directions of others when I

0.710
invest my fund into the market.
V08 Market participants are aware of all kinds of relationship

0.684
between trading volume and stock return volatility.
V34 I traded on the basis of superior information about the market 0.533
but earned lower return.
V04 I read the business section of the newspaper attentively. 0.486
V20 The dependence of return on past returns, past volume and

0.363
current volume always raise questions for me.
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(R2) Cause-Effect Relationship (Cronbach’s α=.711)
V26 Current volume always causes current returns 0.773
V25 Current returns always cause current volume. 0.574
V27 Previous day volume always causes current returns. 0.576
V24 A good knowledge of the relationship between trading volume

and stock return is necessary for gaining profit in the era of 0.512
globalization.
V23 In order to succeed, grow and survive, I have to adopt various

0.427
strategies regarding trading volume and stock return volatility.
Anxiety (Cronbach’s α=.695)
V02 I am anxious about financial and money affairs 0.795
V01 I get unsure by the views of financial experts 0.681
V03 After making a decision, I am anxious whether I was right or

0.677
wrong
Risk Management (Cronbach’s α= .609)
V17 Managing risks in the stock market is difficult task because it 0.674
has movement as per the information flows into the market.
V29 A large positive or large negative return lead future forecasts of 0.596
the variance.
V16 Arrival of new information always causes the volatility in stock 0.44
market.
Projection (Cronbach’s α=.673)
V35 I feel regret when I realize a loss and stock prices rise 0.812

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subsequently
V36 I feel pride when I realize a gain and so sell the winners. 0.621
V10 Majority of market participants invest in market to earn quick 0.391

money.
Anomalies (Cronbach’s α= .745)
V11 Volume always higher in the month of October. 0.799
V12 Volumes always lower in the month of March. 0.776
Inclination (Cronbach’s α= .550)
V33 I dislike ambiguous situations where I feel that I am not in a

0.671
better position than others to evaluate investment in a given
stock.
V32 I prefer to invest in domestic market. 0.596
Tactics (Cronbach’s α= .465)
V28 Previous day returns always cause current volume. 0.788
V22 Analyzing the stock return and trading volume is essential to 0.546
know the causal relationship between these two indicators.
Source: Primary data
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization
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Table 5.6 presents the structure of each dimension depicting investors’ perceptions on
the relationship between trading volume and stock return volatility. It presents the
dimensions and the variables constituting each dimension. The factor loading of each
variable in the respective dimension is also shown in the table. Cronbach’s alpha was
also calculated for each factor to measure the internal consistency of the variables in a
specific factor, which is shows satisfactory results.
The ten factors which were extracted were named as importance of volume and return,
perceive, information, cause-effect relationship, anxiety, risk management, projection,
anomalies, inclination, and tactics (Table 5.6). To find out the impact of these
dimensions, multiple regression analysis was run for two factors taken here as
dependent variables named R1 (Importance of volume and return) and R2 (Cause-effect
relationship) (Table 5.6).
The ten components resulting from the factor analysis are described as follows:
(1) Factor 1 – Importance of Volume and Return. First factor consists of the statements
related to trading volume and stock return volatility, so it is named as ‘importance of
Volume and Return’. Reliability coefficient cronbach’s alpha for this factor is 0.831 and
it explains 11.52 percent of variance. The statement ‘trading volume and stock return
volatility help in determining future price’ has highest factor loading (0.734), which
communicates about the importance of trading volume and stock return indicators.
Investors’ think trading volume and stock return volatility can be used for forecasting
future prices. Another variable included in this factor is ‘trading volume and stock
returns are two major pillars of the stock market which have explanatory power to
provide the transparent map of the microstructure of the capital market’ with factor
loading of 0.693. This statement is testing that trading volume and stock return
volatility are important indicators for knowing the situation of the market. The
parameter ‘it is very important to know the relationship between trading volume and
stock return volatility in stock markets for shifting the position as per the movement of
market’ having factor loading of 0.678 highlights the importance of knowing the

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relationship between trading volume and stock return volatility. Knowledge of trading
volume and stock return volatility is very helpful for shifting the position as per the
movement of market. I see the relationship between trading volume and stock return
when I take decisions about investment has factor loading of 0.624. This statement
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connotes the importance of relationship between trading volume and stock return for
investors while taking investment decision.
In all, this factor emphasizes the importance of trading volume and stock return
volatility for investors while making investment decision.
(2) Factor 2 – Perceive. The factor ‘perceive’ consists of five variables. Value of
cronbach’s alpha for this factor is 0.721. This factor is related to observation of
investors towards their financial decisions. The statement ‘I understand that in order to
achieve higher returns, it is necessary to take some risk’ has highest factor loading of
0.675. Investors have opinion that return always associated with risk. ‘I look at
investment prepositions and apply my own judgment while investing’ having factor
loading of 0.662 is another variable related to the paradigm of investors towards their
investment decision. It studies the application of own judgement while making
investment decision. Investors always wish to participate on discussion about financial
matters and have position as per their understanding suggested by the statements ‘I like
to join conversations about financial matters’ and ‘I always take position as per my
understanding about the market’. The investors are willing to use their own judgement
for investing their money into the market. It signifies the judgement of investors while
making investment decision. The parameter ‘I see the returns when I take decisions
about investment’ has factor loading of 0.501 highlights the perception on return while
making investment decision. Investors perceive returns when they take decision about
investment.
(3) Factor 3 – Information. The third factor, ‘information’ highlights the sources of
information which they have used for investment purpose. Reliability coefficient
cronbach’s alpha for this factor is 0.745. The statement ‘I follow others or depend on
the directions of others when I invest my fund into the market’ has 0.710 loading on the
factor. This statement explains the use of direction of other investors as information for
making their investment decision. Another parameters ‘market participants are aware
of all kinds of relationship between trading volume and stock return volatility’ with
factor loading of 0.684 shows the investors’ knowledge and awareness about the
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relationship of trading volume and stock return volatility. They use trading volume and
stock return as information tool for taking future direction on investment. They feel that
trading volume and stock return are important indicators while making investment
policy. This information helps them in decision making. Another variable ‘I traded on
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the basis of superior information about the market but earned lower return’ has factor
loading 0.533. Investors read business section of the newspaper attentively and they
have question about the dependence of current return on past returns, past volume and
current volume as suggested by the statements ‘I read the business section of the
newspaper attentively’ and ‘the dependence of return on past returns, past volume and
current volume always raise questions for me’. In the view of this discussion, it can be
concluded that information plays important role while making investment decision.
(4) Factor 4 – Cause-Effect Relationship. Fourth factor consists of the statements

related to investors’ perceptions on causal relationship between trading volume and
stock return volatility, so it is named as ‘Cause-effect relationship’. Reliability
coefficient Cronbach’s Alpha for this factor is 0.711 and it explains 6.88 percent of
variance. The statement ‘current volume always cause current returns’ has highest
factor loading (0.773), which communicates about the importance of current trading
volume for current returns. Investors’ think current trading volume has explanatory
power to provide direction of returns. In this statement volume can be used for
predicting returns. Another variable included in this factor is ‘current returns always
cause current volume.’ with factor loading of 0.574. This statement is testing that
current stock returns are important indicator for knowing the situation of the volume.
This statement is opposite to the aforementioned first statement. The parameter
‘previous day volume always causes current returns’ having factor loading of 0.576
highlights the perception of investors on causal relationship between previous day
trading volume and current stock return. Knowledge of trading volume and stock return
volatility is very helpful for shifting the position as per the movement of market. A
good knowledge of the relationship between trading volume and stock return is
necessary for gaining profit in the era of globalization has factor loading of 0.512. This
statement connotes the knowledge of investors on the relationship between trading
volume and stock return volatility for gaining profit in dynamic competitive era.
In all, this factor emphasizes investors’ perceptions on causal relationship between

trading volume and stock return volatility.

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(5) Factor 5 – Anxiety. The fifth factor ‘anxiety’ comprises of three statements.
Reliability coefficient of this factor is 0.695. The statement ‘I am anxious about
financial and money affairs’ has maximum factor loading of 0.795. It measures the
nervous feeling of investors. The parameter ‘I get unsure by the views of financial
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experts’ has loading of 0.681. This parameter points out the views of financial experts
which make investors unconfident. This factor also includes one more statements ‘After
making a decision, I am anxious whether I was right or wrong’ which are related to
fearful confidence of investors. An investor who scores high on anxiety feels unsure
and is worried and anxious about investment decision. Unsure here does not refer to
uncertainty with respect to investment decisions, but to a subjective feeling of doubt
and insecurity. Anxiety is also linked to feelings of regret after having or not having
done something. Problems in investment matters can occur because people who score
high on anxiety are prone to withdrawing from actions they have taken. This indicates
that anxiety comprises feature like unstable preferences which are difficult to manage
in financial areas.
(6) Factor 6 – Risk Management. The cronbach’s alpha for the factor ‘risk
management’ is 0.609. It consists of three statements explaining the flow of
information into the market. Stock market movement depends upon the flow of
information into the market. Therefore, it is very difficult to determine risk in the stock
market. The statement ‘Managing risks in the stock market is difficult task because it
has movement as per the information flows into the market’ has factor loading of 0.674.
Risk is directly or indirectly associated with the return. Moreover, it is difficult to
manage because it has movement as per the information flows into the market. The
parameter ‘A large positive or large negative return lead future forecasts of the
variance’ has factor loading of 0.596. Volatility clustering is very helpful for knowing
future direction of the market. Other parameter ‘Arrival of new information always
causes the volatility in stock market’ with factor loading of 0.44 also signifies the role
of information for creating volatility in the market.
So, flow of information play an important role for creating volatility in stock market
which is associated with risk. Moreover, managing risk is very difficult task due to
flow of new information into the market.
(7) Factor 7 – Projection. The reliability coefficient cronbach’s alpha for the factor
‘projection’ is 0.673. It highlights reaction of investors when they will have either loss
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or gain. This factor ‘projection’ consists of three parameters associated with the
feelings of investors on future outcomes. ‘I feel regret when I realize a loss and stock
prices rise subsequently’ has higher factor loading of 0.812. It conveys calculation or
guess about the the reaction of investors when he/she realize a loss and stock prices rise
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subsequently. ‘I feel pride when I realize a gain and so sell the winners’ having factor
loading of 0.621 measures the significance of gain from investment. Other parameter
‘Majority of market participants invest in market to earn quick money’ with factor
loading of 0.391 also signifies the role of speculative income.
(8) Factor 8 – Anomalies. The reliability coefficient cronbach’s alpha for the factor
‘anomalies’ is 0.745. This factor ‘anomalies’ consists of two parameters associated with
the ups and down in the stock market due to completion of financial year and festival. It
highlights the investors’ perceptions on the month of year affect. ‘Volume always
higher in the month of October’ has higher factor loading of 0.799. Investors assume
volume always higher in the month of October due to Diwali festival. ‘Volumes always
lower in the month of March’ having factor loading of 0.776 measures the affect of
financial year ending. Investors are supposed that volume always lower at the end of
the financial year. Moreover, it measures the affect of Diwali and end of the financial
year.
(9) Factor 9 – Inclination. The factor ‘inclination’ consists of two variables. Value of
cronbach’s alpha for this factor is 0.550. This factor is related to tendency of investors
towards their financial decisions. The statement ‘I dislike ambiguous situations where I
feel that I am not in a better position than others to evaluate investment in a given
stock’ has highest factor loading of 0.671. It highlights the perceptions of Investors on
ambiguous situation. ‘I prefer to invest in domestic market’ having factor loading of
0.596 is another variable related to the tendency of investors towards their investment
decisions.
(10) Factor 10 – Tactics. Last factor consists of the statements related to tactics
followed by investors, so it is named as ‘tactics’. Reliability coefficient cronbach’s
alpha for this factor is 0.465. The statement ‘Previous day returns always cause current
volume’ has highest factor loading (0.788), which communicates previous day returns
as tactics to know the current volume. Investors’ think previous day return should be
used for forecasting future volume. Another variable included in this factor is
‘Analyzing the stock return and trading volume is essential to know the causal

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relationship between these two indicators’ with factor loading of 0.546. Moreover,
trading volume and stock returns are very important indicators for taking rational
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5.2.5 ANOVA and T-Tests Analysis
This section provides descriptive statistics for all the ten factors against demographic
variables. All differences in mean values identified in the analysis are also tested using
one-way ANOVA tests. The objective is to identify if the differences in the mean
values are significant.
Demographics of respondents creates variation among different categories of

respondents, reason being every person considers same set of things in a unique way
which leads to variation in their behaviour regarding a particular stimuli.
Analysis of data was performed in order to examine the investors’ perceptions on the
relationship between trading volume and stock return volatility in Indian stock market
on the basis of demographic factors like age, education, income and occupation.
Table 5.7: ANOVA test Statistics on Investors’ Perceptions on the relationship

between Trading Volume and Stock Return Volatility in Indian stock
Market on the basis of Age of the Respondents
F Sig.
Importance of volume and return .842 .498
Perceive 1.374 .241
Information .404 .805
Cause-Effect Relationship .649 .628
Anxiety 1.753 .136

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Risk Management .604 .660
Projection .568 .686
Anomalies .362 .836
Inclination .153 .962
Tactics 3.477 .008
The above table depicts the relationship between the age of the respondents and the
factors of investors’ perceptions on the relationship between trading volume and stock
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return volatility. After examining the data it was found that there is significant different
in the response of the respondents in case of tactics dimension. Rest of the factors
namely importance of volume and return, perceive, information, cause-effect
relationship, anxiety, risk management, projection, anomalies and inclination do not
show any significant different in their perception regarding trading volume and stock
return volatility. So for only one dimension namely tactics, age is contributing
significant variation among investors perception whereas there is no significance
difference in investors’ perceptions regarding trading volume and stock return volatility
relationship.
Table 5.8: Comparison of Investors’ Perceptions on the relationship between

Trading Volume and Stock Return Volatility on the basis of Age of
Respondents
Age of the Respondents 18-25 25-35 35-50 50-70 Above 70 Total
Importance of volume and return 3.4672 3.7520 3.7178 3.6258 3.5325 3.7036
Perceive 3.8885 4.0287 3.9693 3.9467 4.0068 3.9726
Information 3.5192 3.6072 3.5451 3.5433 3.5661 3.5589
Cause-Effect Relationship 3.2173 3.3084 3.2614 3.2525 3.3424 3.2713
Anxiety 3.3558 3.4661 3.2950 3.3431 3.4237 3.3639
Risk Management 3.6987 3.7596 3.7807 3.7208 3.8079 3.7539
Projection 3.8301 3.9429 3.8889 3.8986 3.9435 3.9020
Anomalies 3.1154 3.2032 3.1372 3.1542 3.1610 3.1571

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Inclination 3.8750 3.8924 3.8510 3.8604 3.8390 3.8656
Tactics 3.5769 3.6614 3.4867 3.5417 3.3475 3.5453
Table 5.8 is producing the results that there is significant difference in case of tactics
which they follow for making strategy regarding financial decisions and for the
remaining nine factors age does not produces any significant difference in the
perception of the investors.
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between Trading Volume and Stock Return Volatility in Indian Stock
Market on the basis of Education of the Respondents
F Sig.
Importance of volume and return 2.255 .061
Perceive 1.190 .313
Cause-Effect Relationship 2.741 .028
Anxiety 1.166 .324
Risk Management 3.316 .010
Projection 1.587 .176
Anomalies 4.165 .002
Tactics .723 .576
The above table depicts the relationship between the education of the respondents and
the factors of investors’ perceptions on the relationship between trading volume and

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stock return volatility. F-statistics gave significant results on cause-effect relationship,

risk management and anomalies whereas remaining factors gave insignificant results. It
signifies that the respondents of different educational groups have diverse views on
‘risk management’, ‘cause-effect relationship’ and ‘anomalies’ and the perception of
respondents of different educational groups is not different to a large extent on
‘importance of volume and return’, ‘perceive’, ‘information’, ‘anxiety’, ‘projection’,
‘inclination’ and ‘tactics’ dimensions (Table 5.9). Investors’ have different kind of
perceptions on volume cause returns, return cause volume, previous day volume cause
current return, previous day return cause current return. It shows that education level of
the investors’ have impact on their strategy regarding causal relationship between
trading volume and stock return volatility. Perceptions’ on risk management also differ
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as per their education level of the investors. Risk plays an important role for getting
return. It is directly associated with return. It shows that risk management techniques of
the investors change as per the change in their education level. Education level of the
respondents also has significant difference on the perceptions of month of the year
affect.

Trading Volume and Stock Return Volatility on the basis of
Education of Respondents
Education of the Up To Graduation P.G. Doctorate Any Total

th
Respondents 12 P other
Importance of volume 3.4672 3.7520 3.7178 3.6258 3.5325 3.7036
and return
Perceive 3.7784 3.9846 3.9762 3.9768 4.0545 3.9726
Information 3.4000 3.5674 3.5801 3.5187 3.5273 3.5589
Cause-Effect Relationship 3.0378 3.3276 3.2600 3.2619 2.9273 3.2713
Anxiety 3.1532 3.3699 3.3819 3.3720 3.0303 3.3639
Risk Management 3.4955 3.8121 3.7638 3.6817 3.4545 3.7539
Projection 3.6486 3.9347 3.9073 3.8882 3.7273 3.9020
Anomalies 2.7838 3.2478 3.1313 3.1032 3.4545 3.1571

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Inclination 3.7297 3.8665 3.8918 3.8387 3.5909 3.8656
Tactics 3.3649 3.5460 3.5508 3.5613 3.6818 3.5453
Table 5.10 shows the mean of different education groups with respect to the ten factors.
Observations from this table suggest that respondents of all education groups agree that
trading volume and stock return volatility has importance while making investment
decision Therefore, volumes and returns are two important indicators for knowing
microstructure of the capital market. Respondents strongly disagree that volatility was
also high in festival and other occasions. The above table also indicate that
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undergraduate respondents think festival and seasons don’t have impact on increasing
volatility while other respondents agree with this.

between Trading Volume and Stock Return Volatility in Indian
Stock Market on the basis of Income of the Respondents
F Sig.
Perceive 1.022 .403
Anxiety 3.666 .043
Projection .547 .741
Anomalies .683 .637
Inclination 1.241 .288
Tactics 1.105 .356

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Table 5.11 depicts the relationship between the income of the respondents and the
factors of investors’ perceptions on the relationship between trading volume and stock
return volatility. After examining the data it was found that there is significant different
in the response of the respondents in case of anxiety dimension. Rest of the factors
relationship, risk management, projection, anomalies, inclination and tactics do not
show any significant difference in their perception regarding trading volume and stock
return volatility. So for only one dimension namely anxiety, income is contributing
significant variation among investors perception whereas there is no significance
difference in investors’ perceptions regarding trading volume and stock return volatility
relationship.
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Trading Volume and Stock Return Volatility on the basis of Income
of Respondents
Income of the 0-20,000 20,000- 25,000- 30,000- 35,000- Above Total
Respondents (Rs) 25,000 (Rs) 30,000 35,000 40,000 40,000
(Rs) (Rs) (Rs)
Importance of
Volume and 3.6552 3.6339 3.6585 3.6626 3.7552 3.7472 3.7036
Return
Perceive 3.9365 3.9496 3.8762 4.0132 3.9952 3.9909 3.9726
Information 3.5442 3.6403 3.5105 3.4947 3.5879 3.5570 3.5589
Cause-Effect
3.2212 3.3479 3.2648 3.1684 3.2565 3.3321 3.2713
Relationship
Anxiety 4.2724 3.3838 3.1937 3.0342 2.9167 2.986 3.3039
Risk
3.6378 3.8011 3.6540 3.7500 3.7930 3.7836 3.7539
Management
Projection 3.9135 3.8431 3.8698 3.8684 3.9073 3.9509 3.9020
Anomalies 3.1635 3.0798 3.2524 3.1447 3.1835 3.1340 3.1571

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Inclination 3.7740 3.7941 3.7952 3.9309 3.8891 3.9019 3.8656
Tactics 3.5433 3.5798 3.4619 3.6447 3.5464 3.5057 3.5453
Source: Primary
Data
Table 5.12 is producing the results that there is significant difference in case of anxiety
and for the remaining nine factors income does not produces any significant difference
in the perception of the investors. Investors who have low income feel unsure and are
worried and anxious about investment decision. They have unstable preference while
making investment decision.
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Stock Market on the basis of Occupation of the Respondents
F Sig.
Perceive 1.201 .309
Information 3.577 .007
Anxiety 1.578 .178
Anomalies .553 .697
Inclination 3.114 .015
Tactics .455 .769
The above table depicts the relationship between the occupation of the respondents and
the factors of investors’ perceptions on the relationship between trading volume and
stock return volatility. F-statistics gave significant results on information and
inclination whereas remaining factors gave insignificant results. It signifies that the
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respondents of different occupational groups have diverse views on ‘information’ and

‘inclination’ and the perception of respondents of different occupational groups is not
different to a large extent on importance of volume and return, perceive, cause-effect
relationship, anxiety, risk management, projection, anomalies and tactics dimensions
(Table 5.13). Investors’ have different kind of perceptions on information which they
have used for taking investment decision. It shows that occupation level of the
investors’ have impact on their source of information which they have used while
investing money into the market. Perceptions’ on inclination also differ as per
occupation of the respondents. It highlights the different tendency of the investors while
making investment decision like as I prefer to invest in domestic market etc.
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Occupation of Respondents
Occupation of the Govt. Private Agriculture Business Any Total
Respondents Services Services Other
Importance of
Volume and 3.6993 3.7285 3.4643 3.7231 3.6308 3.7036
Return
Perceive 3.9774 4.0031 3.8056 3.9484 3.9538 3.9726
Information 3.5642 3.5714 3.4167 3.5893 3.4277 3.5589
Cause-Effect
3.2599 3.2895 3.0167 3.3074 3.2123 3.2713
Relationship
Anxiety 3.3632 3.4228 3.3426 3.3238 3.1744 3.3639
Risk
3.7419 3.7826 3.5185 3.7664 3.7128 3.7539
Management
Projection 3.9403 3.8849 3.7222 3.8702 4.0718 3.9020
Anomalies 3.1595 3.1944 3.0694 3.1209 3.1077 3.1571
Inclination 3.9533 3.8849 3.6111 3.8156 3.7308 3.8656
Tactics 3.5769 3.6614 3.4867 2.5417 3.3475 3.3253

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Table 5.14 shows the mean of different occupational groups with respect to the ten
factors. Scrutinizing the results from the perspective of occupation of respondents
revealed that occupation of investors does not bring any change in their opinion on
importance of volume and return, perceive, cause-effect relationship, anxiety, risk
management, projection, anomalies and tactics. It highlights that respondents of all
occupational groups agree that trading volume and stock return volatility is important
while making investment decisions. Moreover, all they have same kind of opinion
regarding cause-effect relationship. Respondents are disagreed regarding information
and inclination. Study also revealed that it includes only business men and farmers who
have different opinion; else the combinations of other occupations were not noticeably
different from each other (Table 5.14).
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between Trading Volume and Stock Return Volatility in Indian Stock
Market on the basis of Investment Experience of the Respondents
F Sig.
Perceive 4.066 .007
Anxiety 3. 945 .008
Risk Management .976 .403
Tactics .314 .815
Table 5.15 depicts the relationship between the investment experience of the
respondents and the factors of investors’ perceptions on the relationship between

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trading volume and stock return volatility. After examining the data it was found that
there is significant different in the response of the respondents in case of anxiety and
perceive dimensions. Rest of the factors namely importance of volume and return,
information, cause-effect relationship, risk management, projection, anomalies,
inclination and tactics do not show any significant different in their perception
regarding trading volume and stock return volatility. Therefore, investment experience
is contributing significant variation among investors perception for two dimensions
namely anxiety and perceive; whereas there is no significant difference in investors’
perceptions regarding trading volume and stock return volatility relationship.
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Trading Volume and Stock Return Volatility on the basis of Investment
Experience of Respondents
Investment Experience of the 0-5 5-10 10-15 Above 20 Total
Respondents yrs yrs yrs yrs
Importance of Volume and

3.7054 3.7451 3.5867 3.7049 3.7036
Return
Perceive 4.0041 3.9843 3.8429 4.0684 3.9726
Information 3.5469 3.6004 3.4833 3.5211 3.5589
Cause-Effect Relationship 3.3000 3.2915 3.2321 3.1263 3.2713
Anxiety 3.9541 3.9843 3.5429 2.9863 3.6169
Risk Management 3.7931 3.7553 3.6865 3.7456 3.7539
Projection 3.8828 3.9470 3.8353 3.8509 3.9020
Anomalies 3.1517 3.1885 3.0625 3.1974 3.1571
Inclination 3.9172 3.8595 3.8214 3.8026 3.8656
Tactics 3.5345 3.5501 3.5774 3.4868 3.5453

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Table 5.16 is producing the results that there is significant difference in case of anxiety
and perceive and for the remaining eight factors age does not produces any significant
difference in the perception of the investors regarding trading volume and stock return
volatility. It shows that highly experienced investors don’t have fear while investing
fund into the market. Therefore, they are fully confident about their investment
decisions.
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Stock Market on the basis of Investment Objectives of the
Respondents
F Sig.
Importance of volume and return .859 .488
Perceive .953 .433
Anxiety 4. 245 .007
Tactics .428 .788

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The above table depicts the relationship between the investment objective of the
respondents and the factors of investors’ perceptions on the relationship between
trading volume and stock return volatility. After examining the data it was found that
there is significant different in the response of the respondents in case of anxiety and
risk management dimensions. Rest of the factors namely importance of volume and
inclination and tactics do not show any significant different in their perception
regarding trading volume and stock return volatility. Therefore, investment objective is
contributing significant variation among investors perception for two dimensions
namely anxiety and risk management; whereas there is no significant difference in
investors’ perceptions regarding trading volume and stock return volatility relationship.
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Investment Objectives of Respondents
Investment Safety of Generate Achieve Growth Any Total
Objectives of the the Income Particular Other
Respondents Principal Investment Goal
Importance of
3.7779 3.6994 3.6939 3.6627 3.6629 3.7036

Volume and Return
Perceive 4.0149 3.9421 3.9357 4.0009 4.0160 3.9726
Information 3.6604 3.5336 3.5087 3.5278 3.6760 3.5589
Cause-Effect
3.3535 3.2324 3.2960 3.2252 3.2280 3.2713

Relationship
Anxiety 3.8541 3.9843 3.6429 2.9863 3.6169 3.9541
Risk Management 4.0041 3.9843 3.8429 4.0684 3.9726 4.0041
Projection 3.9653 3.9305 3.8929 3.8058 3.9867 3.9020
Anomalies 3.2450 3.1390 3.1131 3.1239 3.2700 3.1571
Inclination 3.8911 3.8398 3.8552 3.8935 3.8200 3.8656
Tactics 3.5495 3.5058 3.5694 3.5717 3.4900 3.5453

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Table 5.18 shows the mean of different investment objective with respect to the ten
factors. Scrutinizing the results from the perspective of investment objective of
respondents revealed that investment objective of investors does not bring any change
in their opinion on importance of volume and return, perceive, information, cause-
effect relationship, projection, anomalies, inclination and tactics. It highlights that all
respondents agree that trading volume and stock return volatility has importance while
making investment decision. Moreover, all they have same kind of opinion regarding
casual relationship between trading volume and stock return volatility. Respondents
have different kind of perception regarding anxiety and risk management.
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Table 5.19: t-test Statistics on Investors’ Perceptions on the relationship between

Trading Volume and Stock Return Volatility in Indian Stock Market
on the basis of Gender of the Respondents
t-test for Equality of Means Mean Difference
T Sig. (2-tailed)
Importance of volume and return -1.226 .221 -.06067
-1.246 .213 -.06067
Perceive -.701 .483 -.02870
-.712 .477 -.02870
Information .075 .941 .00396
.074 .941 .00396
Cause-Effect Relationship -1.281 .201 -.05920
-1.357 .175 -.05920
Anxiety -3.596 .000* -.29181
-3.466 .001* -.29181
Risk Management -.157 .876 -.00729
-.162 .872 -.00729

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Projection -.658 .511 -.03336
-.658 .511 -.03336
Anomalies -.359 .719 -.01991
-.359 .720 -.01991
Inclination -1.151 .250 -.05913
-1.187 .236 -.05913
Tactics .532 .595 .02736
.526 .599 .02736

*significant at .05 level of significance
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Table 5.19 explains that there is significant difference between male and female for the
dimension anxiety. Gender does not bring any significant difference regarding the
remaining dimensions namely importance of volume and return, perceive, information,
cause-effect relationship, risk management, projection, anomalies, inclination and
tactics which support null hypothesis.

Trading Volume and Stock Return Volatility on the basis of Gender
of the Respondents
Gender Male Female
Importance of volume and return 3.6878 3.7485
Perceive 3.965 3.9938
Information 3.5599 3.5560
Cause-Effect Relationship 3.2559 3.3151
Anxiety 3.2120 2.9277
Risk Management 3.7520 3.7593
Projection 3.8933 3.9266
Anomalies 3.1519 3.1718
Inclination 3.8501 3.9093

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Tactics 3.5525 3.5251
So male and female respondents’ opinions have significant variation for the dimension
namely anxiety but when it comes to remaining dimensions responses of the investors
does not have any significant variation (Table 5.20).
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Trading Volume and Stock Return Volatility in Indian stock Market
on the basis of Residence of the Respondents
T Sig. (2-tailed)
Importance of volume and return -1.274 .203 -.07859
-1.293 .197 -.07859
Perceive .136 .892 .00695
.138 .891 .00695
Information 4.288 .000* 0.227
4.283 .000* 0.227
Cause-Effect Relationship -.666 .505 -.03844
-.734 .464 -.03844
Anxiety -1.482 .139 -.10777
-1.601 .111 -.10777
Risk Management -1.695 .090 -.09827
-1.772 .078 -.09827

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Projection -.743 .458 -.04696
-.749 .455 -.04696
Anomalies -1.339 .181 -.09241
-1.288 .199 -.09241
Inclination 4.078 .005* 0.253
4.073 .005* 0.253
Tactics .890 .373 .05706
.857 .393 .05706

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Table 5.21 explains that there is significant difference between urban and rural for the
dimensions namely information and inclination. Residence does not bring any
significant difference regarding the remaining dimensions namely importance of
volume and return, perceive, anxiety, cause-effect relationship, risk management,
projection, anomalies and tactics which support null hypothesis.

Residence of the Respondents
Residence Urban Rural
Perceive 3.9736 3.9667
Anxiety 3.3483 3.4560
Anomalies 3.1437 3.2361

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Tactics 3.5536 3.4965
So urban and rural respondents opinion have significant variation for the dimensions
namely information and inclination but when it comes to remaining dimensions
responses of the investors does not have any significant variation (Table 5.22).
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Trading Volume and Stock Return Volatility in Indian Stock Market
on the basis of Marital Status of the Respondents
T Sig. (2-tailed)
Importance of volume and return 1.020 .308 .06297
1.009 .314 .06297
Perceive 1.250 .211 .06381
1.236 .218 .06381
Information .771 .441 .05104
.767 .444 .05104
Cause-Effect Relationship .122 .903 .00704
.124 .901 .00704
Anxiety .603 .547 .04385
.615 .539 .04385
Risk Management 1.433 .152 .08313

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1.420 .157 .08313
Projection 1.400 .162 .08841
1.413 .159 .08841
Anomalies -.162 .871 -.01119
-.176 .860 -.01119
Inclination -.236 .814 -.01510
-.228 .820 -.01510
Tactics -.884 .377 -.05665
-.850 .397 -.05665
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Marital status does not bring any significant difference in opinion regarding dimensions
relationship, anxiety, risk management, projection, anomalies, inclination, and tactics
which support null hypothesis.

Trading Volume and Stock Return Volatility on the basis of Marital
Status of the Respondent
Marital Status Married Unmarried
Perceive 3.9819 3.9181
Anxiety 3.3702 3.3264
Anomalies 3.1555 3.1667
Tactics 3.5371 3.5938

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The above table depicts that there is no variation in the response of the respondents on
the basis of their marital status. For all the dimensions there is no significant difference
in the opinion of married and unmarried investors (Table 24).
5.2.6 Regression Analysis
Importance of trading volume and stock return volatility
Multiple regression for the statement R1 (Importance of trading volume and stock
return volatility) with all the eight perceived influential aspects of importance of trading
volume and stock return volatility as independent variables depicted that perceive,
information, anxiety, risk management, projection, anomalies and inclination
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are the dimensions which plays a key role for influencing investors’ perceptions on
importance of trading volume and stock return volatility.
Table 5.25: Multiple Regression Result for R1
Unstandardized Standardized T Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) -.398 .113 -3.512 .000
Perceive .164 .030 .135 5.378 .000
Information .230 .024 .246 9.684 .000
Anxiety .161 .019 .189 8.392 .000
Risk
.219 .026 .206 8.280 .000
Management
Projection .124 .025 .127 5.032 .000
Anomalies .104 .020 .116 5.256 .000
Inclination .100 .023 .104 4.374 .000
Tactics .020 .021 .021 .962 .336
Dependent Variable R1: Importance of trading volume and stock return volatility

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Result shows that tactic does not significantly contribute in importance of trading
volume and stock return volatility, as it was excluded in the multiple regression model.
Regression equation depicting the relationship between the influential aspects
contributing to importance of trading volume and stock return volatility will be:
R1= -.39+.16(P) +.23(I) + .16(A) +.21(RM) + .12(P) + .10(A) + .10(I) ---Eq. (1)
Where P = Perceive
I = Information
A = Anxiety
RM = Risk Management
P = Projection
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A = Anomalies
I = Inclination
It is clear from the regression coefficients that information is the most important
dimension while making decision on importance of trading volume and stock return
volatility, followed by risk management, perceive, anxiety, projection, anomalies and
inclination. Aforementioned, all dimensions influence investors’ perceptions on
importance of trading volume and stock return volatility. Therefore, the importance of
trading volume and stock return is associated with risk management, anxiety,
anomalies, etc.
Cause-Effect Relationship
Application of multiple regression with R2 (Cause-effect relationship) as dependent

variable and all eight influential aspects of investors’ perceptions on trading volume
and stock return volatility as independent variables projected that information, anxiety,
risk management, projection and tactics were the major dimensions contributing to the
cause-effect relationship between trading volume and stock return volatility.
Table 5.26: Multiple Regression Result for R2
Unstandardized Coefficients Standardized T Sig.
Coefficients
B Std. Error Beta
(Constant) .664 .140 4.748 .000
Perceive .018 .038 .016 .469 .639

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Information .166 .029 .191 5.681 .000
Anxiety -.072 .024 -.091 -3.042 .002
Risk Management .255 .033 .257 7.808 .000
Projection .161 .031 .177 5.277 .000
Anomalies -.022 .024 -.027 -.908 .364
Inclination -.008 .028 -.009 -.279 .780
Tactics .198 .026 .220 7.659 .000
Dependent Variable R2: Cause-Effect Relationship
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The other influential aspects of investors’ perceptions on trading volume and stock
return volatility like perceive, anomalies and inclination don’t significantly contribute
in influencing investors’ perceptions on cause-effect relationship between trading
volume and stock return volatility, as they were excluded in the multiple regression
model. Regression equation depicting the relationship between the influential aspects
contributing to investors’ perceptions on cause-effect relationship between trading
volume and stock return volatility will be:
R2= .664 + .166 (I) - .072 (A) + .255 (RM) + .161 (P) + .198 (T) ---Eq. (2)
Where I = Information
A = Anxiety
RM = Research Methodology
P = Projection
T = Tactics
Regression coefficients explain that risk management is the most important aspect
which influences investors’ perceptions on cause-effect relationship, followed by
projection and tactics. Negative coefficient for information shows that higher the value
for these statements means investors’ decisions are affected by information. Negative
coefficient for anxiety shows that when investors have low anxiety then they will
perceive casual relationship. Moreover, when investors have high anxiety then they will
not show interest in casual relationship. Therefore, when investors’ don’t have stable
mind then it is negatively affecting investors’ perception on causal relationship between
trading volume and stock return. So results shows that risk, tactics, projections and
information will exhibits higher impact on cause-effect relationship between trading

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volume and stock return volatility i.e., that investors will exhibits higher tendency
towards cause-effect relationship.
5.3 Concluding Remarks
The present study carried out a survey to gather the opinion of investors, brokers,
portfolio managers, financial experts on the relationship between trading volume and
stock return volatility in India. For this a sensitive questionnaire was developed. Since
study on this subject has never been done using primary data, hence, the present study
framed the statements for the questionnaire from theory and review of empirical studies
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related to the topic. Thirty seven statements were finalized on five-point-Likert-type

scale after detailed meetings with members during pre-testing. Only essential variables
were kept in the questionnaire and number of items in scale was kept below 50 as
asking too much from respondents may give rise to unwillingness or inability of
responding. As recommended by Malhotra (2008), sensitive questions like income and
demographics were kept in the second part of questionnaire.
The study was conducted using convenience sampling making the overall sampling
criteria. In such cases, Cadler, Phillips and Tybout (1981) advocated the use of
convenience sampling keeping in mind the important dimensions of the market
participants. A total of 1100 questionnaires were distributed in these areas. 993
questionnaire were found fit for the data analysis, which leads to final sample size of
993. To make the current study holistic in nature, data were collected from the market
participants of all demographic profiles.
Factor analysis was used to divide these statements into ten factors. The first factor
‘importance of trading volume and stock returns’ emphasizes the importance of trading
volume and stock return volatility for investors while making investment decision. It
includes statement like trading volume and stock returns are two major pillars of the
stock market which have explanatory power to provide the transparent map of the
microstructure of the capital market. These types of statement shows that trading
volume and stock return volatility can be used for forecasting the microstructure of the
stock market. ‘Perceive’ factor find out the reasons behind their financial decisions. It
includes statement like I see the returns when I take decisions about investment which
highlights the perception on return while making investment decision. Therefore, this
factor shows the basis which investors choose while making judgement on investment
decision. Most of the investors use their own judgement while investing fund into the
market.
‘Information’ factor emphasizes on the sources of information which investors are

used while investing fund into the market. It consists of statement like I follow others

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or depend on the directions of others when I invest my fund into the market; I traded on
the basis of superior information about the market but earned lower return, etc. ‘Cause-
effect relationship’ factor judges the perception of investors on causal relationship
between trading volume and stock return volatility. It consists of statements like
volume cause return, return cause volume, previous day volume cause current return
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and previous day return cause current return. Aforementioned, all statements explain
investors’ perceptions on causal relationship between trading volume and stock return
volatility. Volume always cause current return has highest factor loading. Therefore, it
highlights the dependence of return on volume. ‘Anxiety’ factor judges the confidence
level of investors while making investment decision. Anxiety is also linked to feelings
of regret after having or not having done something. Problems in investment matters
can occur because people who score high on anxiety are prone to withdrawing from
actions they have taken. This indicates that anxiety comprises feature like unstable
preferences which are difficult to manage in financial areas.
‘Risk Management’ factor judges the opinion of investors for managing risk. Flow of
information play an important role for creating volatility in stock market which is
associated with risk. Therefore, managing risk is very difficult task due to flow of new
information into the market. Moreover, risk is directly or indirectly associated with
flow of new information into the market. It consists of statement like managing risks in
the stock market is difficult task because it has movement as per the information flows
into the market, large positive or large negative return lead future forecasts of the
variance, etc. ‘Projection’ factor judges the reaction of investors when they have either
loss or gain. They have some calculation based on existing information. This factor
‘projection’ consists of three parameters associated with the feelings of investors on
future outcomes.
‘Anomalies’ factor judges the opinion of investors on month of the year affect,
especially during festival and end of the financial year. ‘Inclination’ factor judges’
tendency of investors towards their financial decisions. It consists of variable like I
dislike ambiguous situations where I feel that I am not in a better position than others to
evaluate investment in a given stock; I prefer to invest in domestic market, etc.
‘Tactics’ factor consists of the statements related to tactics followed by investors.
Variable included in this factor is analyzing the stock return and trading volume is
essential to know the causal relationship between these two indicators. Moreover,

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trading volume and stock returns are very important indicators for taking rational
Investors’ perceptions changes with according to their age. Therefore, the persons of
different age groups depict different kind of perception. Hence, it is of paramount
importance to study the perception of different age groups and try to understand the
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similarities or differences in their investors’ perceptions. Total 993 respondents were

divided into five groups according to age of the respondents. The age of respondents
ranges from 18 to 81 years old, with 10.5 percent between 18 to 25 years old (n= 104),
25.3 percent between 25 to 35 years old (n=251), 34.1 percent between 35 to 50 years
old (n=339), 24.2 percent between 50 to 70 years old (n=240) and 5.9 percent above 70
years old (n=59). This shows that majority of respondents in first set are middle-aged.
All respondents completely agree that trading volumes and stock return have
importance while making investment. There is no complete agreement on tactics which
they follow for making strategy regarding financial decision. It signifies that the
respondents of different age groups have diverse views on ‘tactics’ and the perception
of respondents of different educational groups is not different to a large extent on
‘importance of volume and return’, ‘perceive’, ‘information’, ‘anxiety’, ‘projection’,
‘inclination’, ‘cause-effect relationship’, ‘anomalies’ and ‘risk management’
dimensions. Therefore, all respondents completely agree that causal relationship exist
between trading volume and stock return volatility. Moreover, all age groups of
respondents agree that causal relationship exist between trading volume and stock
return volatility but their opinion do not strongly agree on such kind of relationship.
Education gives knowledge and a knowledgeable person becomes more aware and
concerned for the financial decision. Therefore, investors’ perceptions are also
influenced by education. The sample was divided into five educational categories on
the basis of the pilot study. In the sample, 3.07 percent respondents were educated upto
12 th standard, 33.9 percent respondents were qualified upto graduation. Post graduate
P P
respondents were 45.6 percent and doctorates were only 15.6 percent. After analysing
the responses of respondents on the basis of education groups, it has been observed that
most of the respondents have qualification of post graduation and graduation. There is
no complete agreement on three factors with respect to education, viz, ‘cause-effect
relationship’, ‘risk management’ and ‘anomalies’ and the perception of respondents of
different educational groups is not different to a large extent on ‘importance of volume
and return’, ‘perceive’, ‘information’, ‘anxiety’, ‘projection’, ‘inclination’ and ‘tactics’
dimensions. Investors’ have different kind of perceptions on volume cause returns,
return cause volume, previous day volume cause current return, previous day return
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cause current return. It shows that education level of the investors’ have impact on their
strategy regarding causal relationship between trading volume and stock return
129

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volatility. Perceptions’ on risk management also differ as per their education level of
the investors. Risk plays an important role for getting return. It is directly associated
with return. It shows that risk management techniques of the investors change as per the
change in their education level. Respondents strongly disagree that volatility was also
high in festival and other occasions. The results also indicate that undergraduate
respondents think festival and seasons don’t have impact on increasing volatility while
other respondents agree with this. Moreover, the study has found that respondents of all
education groups agree that trading volume and stock return volatility has importance
while making investment decision Therefore, volumes and returns are two important
indicators for knowing microstructure of the capital market.

respondents earn more than forty thousand rupees in a month. After analysing the data
it was found that respondents do not have same kind of perception regarding anxiety
whereas rest of the factors namely importance of volume and return, perceive,
information, cause-effect relationship, risk management, projection, anomalies,
inclination and tactics do not show any significant difference in their perception
regarding the relationship between trading volume and stock return volatility. So for
only one dimension namely anxiety, income is contributing significant variation among
investors perception whereas there is no difference in the opinion of investors regarding
trading volume and stock return volatility relationship. Moreover, the study has found
that investors who have low income feel unsure and are worried and anxious about
investment decision. They have unstable preference while making investment decision.

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Occupation is an important determinant for analysis. Investor perception on trading

130

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or profession and 3.6 percent were found associated with agriculture and remaining
(6.5%) categorized as any other who were either students or housewives. Scrutinizing
the results from the perspective of occupation of respondents revealed that occupation
of investors does not bring any change in their opinion on importance of volume and
return, perceive, cause-effect relationship, anxiety, risk management, projection,
anomalies and tactics. It highlights that respondents of all occupational groups agree
that trading volume and stock return volatility is important while making investment
decisions. Moreover, all they have same kind of opinion regarding cause-effect
relationship. Respondents are disagreed regarding information and inclination. Study
also revealed that it includes only business men and farmers who have different
opinion; else the combinations of other occupational groups were not noticeably
different from each other.
Investors experience play important role for taking rational investment decisions.
Therefore, the responses of respondents vary as per their experience. The experience of
participants ranges from 0 to 56 years, with 29.2 percent between 0 to 05 years (n=
290), 46.2 percent between 05 to 10 years (n=459), 16.9 percent between 10 to 15 years
(n=168) and 7.7 percent above 20 years (n=76). There is no complete agreement in case
of anxiety and perceive and for the remaining eight factors age does not produces any
difference in the opinion of the investors regarding trading volume and stock return
volatility. Moreover, the study has found that highly experienced investors don’t have
fear while investing fund into the market. Therefore, they are fully confident about their
investment decisions.
any other objective. After examining the data it was found that investment objective of
investors does not bring any change in their opinion on importance of volume and

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inclination and tactics. It highlights that all respondents completely agree that trading
volume and stock return volatility has importance while making investment decisions.
Moreover, all they have same kind of opinion regarding casual relationship between
131

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trading volume and stock return volatility. Respondents have different kind of perception
regarding anxiety and risk management.
The natural demographic balance of male and female is reflected in the sample with 73.9
per cent male (n=734) and 26.1 per cent female (n=259). After examining the data it was
found that there is difference in the opinion of male and female for the dimension anxiety.
Gender does not bring any significant difference regarding the remaining dimensions
namely importance of volume and return, perceive, information, cause-effect relationship,
risk management, projection, anomalies, inclination and tactics.
In case of residence status of respondents, it was found that urban and rural respondents
opinion have significant variation for the dimensions namely information and inclination
but when it comes to remaining dimensions responses of the investors does not have any
significant variation. It was found that there is no variation in the response of the
respondents on the basis of their marital status. For all the dimensions there is no
significant difference in the opinion of married and unmarried investors.
Regression results exemplified that information is the most important dimension while
making decision on importance of trading volume and stock return volatility, followed by
risk management, perceive, anxiety, projection, anomalies and inclination. All above
dimensions influence investors’ perceptions on importance of trading volume and stock
return volatility. Therefore, the importance of trading volume and stock return is associated
with risk management, anxiety, anomalies, etc.
Risk management is the most important aspect which influences investors’ perceptions on
cause-effect relationship, followed by projection and tactics. Negative coefficient for
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information shows that investors’ decisions are affected by information. Negative

coefficient for anxiety shows that when investors have low anxiety then they will perceive
casual relationship. Moreover, when investors have high anxiety then they will not show
interest in casual relationship. Therefore, when investors’ don’t have stable mind then it is
negatively affecting investors’ perception on causal relationship between trading volume
and stock return. So results shows that risk, tactics, projections and information will
exhibits higher impact on cause-effect relationship between trading volume and stock
return volatility i.e., that investors will exhibits higher tendency towards cause-effect
relationship.
132

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Trading volume and stock return volatility in

always creates a challenging environment in front of investors, policy makers, brokers,

measure of financial vulnerability, it plays a key role in assessing risk/return trade-offs.

relationship between trading volume and stock return. An investor’s objective

stock market along with investors’ perceptions on the topic.

stock market which is to consider every type of market.

6.2 Findings of the Study

First Research Objective

relationship study is to provide protection against movement in future, in order to

reduce the extent of financial risks.

to adjust to this change in future expectations. Thus, an increase to volatility causes

(Poterba and Summers, 1986).

the future movement of the market.

causes return. Therefore, bi-directional causality exists in sensitive index (SENSEX).

The hypothesis that previo

are in an insignificant positive correlation. The correlation between previous day

indices should be the same.

equal impact on the other variable.

Third Research Objective

Nifty and Sensitive Index (SENSEX). Volatility always creates challenging

environment in front of investors, policy makers, brokers, portfolio managers, etc.

predicted to increase or by using more sophisticated dynamic diversification

approaches to predicted hedge volatility increase.

have upward movement and vice-versa. Therefore, analyzing volatility is essential to

volatility. Therefore, in order to grow, succeed and survive in this dynamic

knowledge by providing a holistic treatment to the subject of stock market volatility in

econometric techniques and employing GARCH models.

August, September, November and December a negative mean is not present.

market return volatility is explained by descriptive statistics. In general, volatility

seems to be of a persistent nature.

Fourth Research Objective

To analyze investors’ perceptions on the relationship between trading volume and

stock return volatility.

portfolio managers’ perception on the volatility in the stock market is considered to be

investors, brokers, portfolio managers, financial experts on the relationship between

information, cause-effect relationship, anxiety, risk management, projection, anomalies,

similarities or differences in their investors’ perceptions. A total of 993 respondents

stock return have importance while making investment. There is no complete

and the perception of respondents of different educational groups is not different to a

large extent on “volume importance and return”, ‘perceive’, ‘information’, ‘anxiety’,

‘projection’, ‘inclination’, ‘cause-effect relationship’, ‘anomalies’ and ‘risk

management’ dimensions. Therefore, all respondents completely agree that causal

observed that most of the respondents have a graduation or post graduation

qualification. There is no complete agreement on three factors with respect to

education, ‘cause-effect relationship’, ‘risk management’ and ‘anomalies’ and the

perception of respondents of different educational groups is not different to a large

extent on ‘importance of volume and return’, ‘perceive’, ‘information’, ‘anxiety’,

‘projection’, ‘inclination’ and ‘tactics’ dimensions. Investors have different kinds of

capital market’s microstructure.

Investors’ investment is based on their income. Volume and frequency of earnings

a vital component of investor’s demographics. It is recorded and categorized into six

perceive, information, cause-effect relationship, risk management, projection,

perception. So for only one dimension namely anxiety, income is contributing

significant variation among investors perception whereas there is no difference in the

making investment decisions.

Occupation is an important determinant for analysis. Investor perceptions on trading

cause-effect relationship, anxiety, risk management, projection, anomalies and tactics

Investors’ experience plays an important role in taking rational investment decisions.

participants (n=252) want to accomplish particular investment goal, whereas 23.2

return, perceive, information, cause-effect relationship, projection, anomalies,

different kinds of perception regarding anxiety and risk management.

importance of volume and return, perceive, information, cause-effect relationship, risk

management, projection, anomalies, inclination and tactics. In case of respondents’

dimensions influence investors’ perceptions on trading volume and stock return