International Research Journal of Finance and Economics ISSN 1450-2887 Issue 32 (2009) EuroJournals Publishing, Inc. 2009 http://www.eurojournals.com/finance.

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Volume and Volatility: A Case of ISE-30 Index Futures

Berna Okan International Trade and Finance Department Izmir University of Economics, Turkey E-mail: berna.okan@ieu.edu.tr Tel: +90 232 4888244; Fax: +90 232 4888197 Onur Olgun International Trade and Finance Department Izmir University of Economics, Turkey E-mail: onur.olgun@ieu.edu.tr Tel: +90 232 4888192; Fax: +90 232 4888197 Sefa Takmaz International Trade and Finance Department Izmir University of Economics, Turkey E-mail: sefa.takmaz@ieu.edu.tr Tel: +90 232 4888196; Fax: +90 232 4888197 Abstract The objective of this paper is to examine the volume-volatility relationship (dynamic and casual) for the ISE-30 index futures using daily data for the period 20062008. We fundamentally conduct the empirical analyses by employing GARCH, Exponential GARCH (EGARCH) and VAR approaches. The results indicate that trading volume as a proxy of information arrivals slightly reduces the persistence of the conditional variance and has a negative impact on volatility, challenging the presence of Mixed Distribution Hypothesis in Turkish Derivatives Exchange. However, our findings are strongly consistent with the Sequential Information Arrival Hypothesis where trading volume and return volatility follow a lead-lag pattern. It is expected that the implications of the study will be useful for hedgers and speculators dealing with Turkish stock index futures. Keywords: Trading Volume, Volatility, Turkish Derivatives Exchange, EGARCH

1. Introduction
In recent years, the role of information in pricing of stock has attracted wide interest in the areas of finance and economic literature. This attention has been driven by the recent advances in market microstructure literature which greatly enhances our understanding of the incorporation on information into asset price and volume. Market microstructure theory suggests that trading and asset price changes are induced by information releases. Trading volume is viewed as the critical piece of information by pointing to the asymmetric behavior particularly. Hence, it is implied that the volume parameter plays an important role to reflect the market information.

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There are two challenging theoretical explanations for the relationship between observed trading volume and return volatility. One of the meaningful approaches for rationalizing the strong correlation between trading volume and return volatility is provided by the Mixture of Distribution Hypothesis (MDH, hereafter) and the other one is the Sequential Information Arrival Hypothesis (SIAH, hereafter). According to the MDH, the interaction among volatility and trading volume is critically dependent upon the rate of information flow into the market. Moreover, the joint distribution of these variables is bivariate and conditional upon the arrival of information. All investors receive the price signals simultaneously in this manner. Alternatively, the SIAH states that new information is transmitted to the market in a sequential fashion. Thus, the lagged values of volume may have an ability to predict current volatility, and vice versa. Based on the influence of trading volume, relatively little work has been conducted for the futures markets in spite of the presence of a numerous empirical research on stock markets. However, the transaction volume of financial derivatives has been growing steadily in the world. One of the fastest growing futures markets in emerging countries is the Turkish Derivatives Exchange (TurkDEX) wherein the ISE-30 stock index futures contract has begun to dominate the market with a share of 60.71% and 91.16% in 2006 and 2007 respectively. We aim to investigate the causal and dynamic relationships between the return volatility and trading volume of the ISE-30 index futures by utilizing a reasonably more recent database from April 2006 to June 2008. The contribution of the paper is threefold: First, it helps to identify the internal dynamics of widely traded ISE-30 index futures. This procedure is essential in pricing of the contracts. Secondly, we aim to fill the gap in the literature about the TurkDEX by examining the impact of trading volume on volatility persistence. Whilst the most previous studies have focused on Istanbul Stock Exchange (ISE) for Turkey, there are so limited researches on the newly established derivatives market. Thirdly, the implications of the study are expected to be functional for risk managers and individual investors dealing with Turkish stock index futures. Along with the objectives of the paper, the empirical analyses are conducted by GARCH and EGARCH specifications fundamentally, as these methods are found to be well-fitted to financial data. To support the findings of GARCH and EGARCH models in testing the hypotheses related to the volume and volatility relation, we further check the Granger causality within the VAR approach. The rest of the paper is organized as follows. Section 2 gives a brief literature review on the relationship between return volatility and trading volume for the financial markets. Section 3 discusses econometric methodology. The data set and empirical results are presented in Section 4. Finally, Section 5 contains concluding remarks.

2. Literature Review
The considerable amount of empirical research in the finance literature has concentrated on trading volume and volatility relationship, which makes contribution not only to a well-established stream of studies, but also turn out to be relevant in a broader historical economic perspective. As documented widely in the finance literature, trading volume and price volatility display a positive correlation. Karpoff (1987) cited previous studies that document positive relation between volatility and volume. Then, Schwert (1989) evidenced a positive relationship between estimated volatility and current and lagged volume growth rates through the linear distributed lag and VAR models for the monthly aggregates of daily data on Standard and Poor (S&P) index. Similar issue was also studied by Lamoureux and Lastrapes (1990) in a seminal work using the individual stocks from the S&P index. They reported a positive conditional volatility-volume relationship in models with the Gaussian errors and GARCH type volatility specifications. However, the finding was cautiously interpreted as it might be biased due to the simultaneity between the stock returns and volume. The parallel results were also found by Bessembinder and Seguin (1993) for a variety of futures markets. One of the earlier models to explain the positive volume and volatility correlation is Mixture of Distribution Hypothesis (Clark, 1973; Epps and Epps, 1976; Tauchen and Pitts, 1983; Harris, 1986)

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that posits a joint dependence of returns and volume on an underlying latent event or information flow variable. That is both trading volume and the price respond contemporaneously to new information. Many financial time series have been modeled by the use of GARCH (Bollerslev, 1986) models. It is widely stated that the returns of financial assets are not generated from a single distribution but rather from the MDH. Thus, the GARCH effect is explained by considering the rate of arrival of information flow as the mixture variable. Accordingly, Brailsford (1996) tested the relationship among the trading volume and conditional return volatility in the Australian stock market using the GARCH(1, 1) model. He concluded that for absolute returns, the results provide a strong support to the inferences of Lamoureux and Lastrapes (1990). In contrast, some of the later studies (Chen et al., 2001; Aroga and Nieto, 2004) suggest no reduction in the persistence of volatility. Sequential Information Arrival Hypothesis is another framework to explain volume and volatility correlation developed and extended by the studies of Copeland (1976), Jennings et al. (1981), Jennings and Barry (1983) and Smirlock and Starks (1985). In this model, new information is disseminated sequentially to investors. Thus, the correlation between trading volume and price volatility arises in a sequential manner. While most empirical studies have been limited to the US and European markets, small number of researchers have amplified the literature by examining trading volume, return and volatility relationships in emerging markets. Moosa and Al-Loughani (1995) used monthly data to examine four Asian stock markets which are Malaysia, Philippines, Singapore and Thailand, while Silvapulle and Choi (1999) adopted daily data for stock returns and trading volume in the Korean market. Furthermore, Saatcioglu and Starks (1998) scrutinized six Latin American stock markets that are Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. Lee and Rui (2000) studied daily returns and trading volume information for four Chinese market indices (Shanghai A, Shanghai B, Shenzhen A and Shenzhen B). Gndz and Hatemi-J (2005) used weekly data to investigate Central and Eastern European markets as well (Budapest, Istanbul, Moscow, Prague and Warsaw). Besides, Baklaci and Kasman (2007) examine the 25 individual stocks traded in Istanbul Stock Exchange in this respect. These emerging market studies also provide inconclusive evidence on the returnvolume relationship. As a result of investor heterogeneity and incomplete markets in asset pricing models, trading volume plays an important role in influencing asset prices. According to Wang (1994) investors trade rationally for both informational and non-informational reasons, which leads to different dynamics between trading volume and stock returns in his model of Rational expectations. His model links the trading volume to stock price volatility under asymmetric information pattern. In the light of information asymmetry, the relationship between trading volume and return volatility has also been investigated in a similar theoretical framework. For example, Chen et al. (2001), who employed EGARCH(1,1) model to estimate return volatility, found a positive association between return variance and lagged trading volume in New York, Tokyo, London, Paris, Toronto, Milan, Zurich, Amsterdam, and Hong Kong stock markets. Lee and Rui (2002) uncovered the feedback relationships between trading volume and return volatility in New York, Tokyo and London markets which were intensied after 1987 crash. Moreover, Kim (2005) found that US trading volume to Granger cause return volatilities in the main Asia-Pacic markets such as Australia, Japan, Hong Kong and Singapore. In brief, it is generally accepted that there is a relation between trading volume and price volatility indicated by different models and methods. However, the literature still suffers from the lack of studies examining the return volatility-trading volume relationship in emerging and futures markets, which is taken into account as one of the major purposes by our study.

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3. Data
The dataset used in the study comprises daily returns and trading volume for a rollover of nearby ISE30 index futures contracts1 traded in TurkDEX during the period April 18, 2006 to June 30, 2008 (556 observations). Return series has been generated by taking the first log difference of the daily closing values. Table-1 below presents the important descriptive statistics relating to the variables of return and trading volume.
Table 1: Descriptive Statistics
Return -0.000437 -0.001003 0.071485 -0.083817 0.020915 0.0075 4.9783 65.143 0.0000 T. Volume 3.46E+08 2.39E+08 1.25E+09 4.27E+05 3.12E+08 0.7331 2.4015 58.107 0.0000

Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis Jarque-Bera Probability

As highlighted in the table, both series are positively skewed by pointing out an asymmetrical right-tailed distribution. The excess kurtosis estimate of the returns also implies that the distribution of returns has fat tails, leptokurtic, relative to the normal distribution. Furthermore, the significant JarqueBera statistics of series indicate a departure from normality through rejecting the hypothesis of symmetric distribution. All these findings clearly shed light on the existence of GARCH effects in the sample particularly. The magnitude of trading volume in TurkDEX, especially for ISE-30 contracts, has been growing continuously as underlined previously since the beginning date of trading in 2005. Therefore, it is strongly possible that the volume series contains the linear and nonlinear time-trends, which should be eliminated first to make an appropriate evaluation. We examine the trend stationarity in trading volume by running the following regression equation based on the deterministic function of time: Vt = 0 + 1 t + 2 t 2 + t (Model 1) where V represents raw trading volume. Linear and quadratic time trends are demonstrated by t and t2 respectively. The regression results2 exhibit that the coefficients of both trend terms are statistically significant and the robustness of the model is acceptable. Hence, the residuals gathered from Eq.1 will be used as detrended volume series (DV) in the subsequent analyses.

4. Methodology
4.1. Conditional Volatility and Trading Volume The heteroskedastic nature of the financial time series has been confirmed by numerous empirical studies over the last decade. These series are characterized by the conditional time-varying volatility and volatility clustering within the econometric perspective. The autoregressive conditional heteroskedasticity process (ARCH) of Engle (1982) and its generalized form, GARCH, developed by Bollerslev (1986) are found to be superior for modeling financial asset returns, since they allow the variance to change over time by considering a long term memory contemporaneously.
1

The ISE-30 index futures have been launched in February 4, 2005. As the contracts were not heavily traded in the first year, we start the analyses in the paper from 2006. Moreover, the sample data were obtained from the website of TurkDEX (http://www.vob.org.tr/QuotaHistoricMain.aspx) Results are not provided here but are available upon request from the authors.

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Although the presence of heteroskedasticty feature is widely detected for many return series, the probable source of this phenomenon is still debatable theoretically. One reasonable explanation is the MDH (Clark, 1973), which emphasizes that daily returns are generated by a mixture of distribution. In this context, serially correlated mixing variable controls the rate of information arrivals to the market. On the other hand, it is not simple to observe the rate of information flow to the market directly. Lamourerux and Lastrapes (1990) integrated the trading volume to the GARCH representation as a proxy for predicting the unobservable information arrivals. They reported that the volatility persistence (GARCH effect) in return series diminishes significantly with the inclusion of trading volume to the conditional variance. In order to analyze the potential effects of trading volume on the conditional volatility, we firstly employ the GARCH (1, 1) specification as follows. R t = + t , t = N(0, h t ) (Model 2)
2 h t = + i t i + j h t i =1 j=1 m n j

+ i DVt

(Model 3)

Rt and ht are used to define the daily return and conditional variance respectively. The parameter in Eq.5 is the predetermined regressor of trading volume (DVt) and the degree of persistence in the volatility is measured by the sum of the coefficients (ARCH effect) and (GARCH effect). According to the MDH, the GARCH effect in the data can be explained if i is significantly positive and (+ ) should be considerably smaller than the magnitude of persistence in the restricted version of the conditional volatility, which does not include volume. Nonetheless, GARCH (1,1) model has some disadvantages, as it does not allow for the asymmetric shocks in the conditional variance. Since the distributions of series in this study are stated as non-linear (see Table-1), we apply asymmetric Exponential GARCH (EGARCH) model of Nelson (1991) alternatively. In particular, Cumby et al. (1993) emphasize two essential strengths of the EGARCH model over standard GARCH specification. First, the limitations of positive constraints on the ARCH and GARCH coefficients are eased by using the exponential formulation. Second, EGARCH model has an ability to capture the negative asymmetry that commonly observed in the financial series through estimating the standardized residuals as a moving average (MA) regressor in the volatility equation. The following AR(p)-EGARCH (1,1) model is conducted to scrutinize the relationship between the trading volume and conditional volatility by considering the asymmetric effects.

R t = 0 + i R t
i =1

+ t
1

(Model 4)
1

log(h t ) = 0 + 1 t

/ ht

) + 2 log(h t 1 ) + 1 ( t 1 /

ht

)+

DVt

(Model 5)

The coefficients of 1 and 2 represent the ARCH and GARCH effects on the volatility and the persistence is equal to the sum of these coefficients. parameter predicts the asymmetric dynamics in the conditional variance. Also, the GED distributed innovations around zero mean are identified by t in Eq.5. We prefer lagged volume (DVt-1) as a proxy for uneven information flow, which is more appropriate and common for EGARCH specifications.

4.2. Causal Relationship Between Volatility and Trading Volume

In order to characterize the simultaneous interactions among volatility and trading volume, we employ Granger causality approach through estimating a bivariate vector autoregressive (VAR) model. This procedure helps us to examine the linear contemporaneous correlation (lead-lag structure) between the variables and further tests whether trading volume precedes volatility or vice-versa. The bivariate VAR model constructed for the analysis is expressed as follows:

h t = 0 + i h t
i =1

+ i DVt
i =1

+ t

(Model 6)

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DVt = 0 + i DVt i + i h t i + t
i =1 i =1 p p

98 (Model 7)

where ht and DVt represent volatility and trading volume respectively. The volatility time-series is generated by using the variance predictions of the restricted GARCH (1,1) model without volume regressor. If and coefficients are significantly different from zero, there is a bivariate feedback interaction between the trading volume and volatility. To test the null hypotheses corresponding to investigate Granger causality among variables, a standard F-test is used in the study. Moreover, the VAR model does not permit non-stationarity condition of any variable to avoid spurious regression forecasts; hence, it will be checked with unitroot tests in the next section.

5. Empirical Results
5.1. Preliminary Tests for Stationarity and Autocorrelation
We perform the Augmented Dickey-Fuller (ADF) and the Philips-Perron (PP) tests on the individual return (R), trading volume (DV) and volatility (h) series to verify the absence of unit-roots for the selected lag orders. Table-2 reports the findings of both ADF and PP tests, which exhibit all the series are stationary at %1 significance level for the constant and trend included forms separately.
Table 2: Unit Root Tests

Return (R) Volume (DV) Volatility (h) Constant -4.746* -4.305* -4.421* ADF Trend -4.844* -4.276* -4.551* Constant -24.981* -11.129* -4.683* PP Trend -12.232* -11.122* -4.804* * denotes the rejected the null hypothesis of there is unit root at 1% significance. Note: Optimum lag is selected according to the AIC, critical values are based on MacKinnon (1991); critical values are 3.50 (99%), -2.86 (95%) and -4.056 (99%), -3.41 (95%) with constant and with trend, respectively.

One key conjecture of the MDH is that the mixing variable (i.e. trading volume) should be serially correlated with its lagged values over successive time intervals. Therefore, the autocorrelation structures of the series are also scrutinized by the Ljung-Box-Q test, for 5-10-15 and 20 lags, in Table3.
Table 3: Ljung-Box-Q Statistics
Volatility (h) 1734.6* (0.00) 2441.6* (0.00) 2869.9* (0.00) 3137.0* (0.00)

Lag (n) Return (R) Volume (DV) 6.60 (0.25) 751.96* (0.00) Q(5) 13.44 (0.20) 916.08* (0.00) Q(10) 16.09 (0.38) 1029.80* (0.00) Q(15) 19.79 (0.47) 1098.10* (0.00) Q(20) * indicates the significance level at 1%. The numbers in brackets show p-values.

The Q-statistics above are highly significant for the volume and volatility time-series at all selected lags. This implication plainly approves the existence of a serial correlation concerning the mentioned variables. However, the null hypothesis of independence (lack of autocorrelation) can not be rejected significantly for the return data set.

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5.2. Results of GARCH (1,1) and AR(p)-EGARCH (1,1) Parameterizations

Table-4 summarizes the estimated coefficients3 of restricted (without trading volume) and unrestricted (with trading volume) versions of the GARCH (1,1) model4 to compare the degrees of persistence in volatility. The maximization of the log-likelihood functions composes the base of the estimation process in the analysis. To support the robustness of the models, we present Ljung-Box (LB), and ARCH-LM residual test results in the same table additionally as diagnostics.
Table 4: Estimates of GARCH (1,1) Models
GARCH (1,1) (Restricted) 2.9E-05* (0.0024) 0.05688* (0.0000) 0.89085* (0.0000) 0.9477 18.62 (0.55) 0.32 (0.57) GARCH (1,1) (Unrestricted) 0.00016* (0.0014) 0.14998* (0.0000) 0.60000* (0.0000) -1.7E-11* (0.0000) 0.7499 18.45 (0.56) 0.80 (0.37)

Parameters & Diagnostics

+
LB (20) ARCH-LM

* indicates the significance level at 1%. Notes: The p-values are given in the brackets. LB (20) represents Ljung-Box-Q statistic with 20 lag for the normalized residuals (level). Further, ARCH-LM demonstrates the F-statistics of the related test. The lag-length (1) for ARCH-LM test is determined by AIC criterion.

It is firstly emphasized by the results that all estimated coefficients are statistically significant for restricted and unrestricted versions of the GARCH (1,1) model. Thus, GARCH (1,1) framework has an ability to capture the heteroskedasticity feature of the data and forecast conditional volatility. On the other hand, we affirm the adequacy of the GARCH (1,1) specifications (without and with volume) through diagnosis tests on normalized residuals as well, since the null hypotheses of no serial correlation and no ARCH effect left can not be rejected by the LB and ARCH-LM tests respectively. According to the joint observations of always > and (+)<1, the processes can be classified as stationary (Bollerslev, 1987). The volatility persistency (+) is considerably high (0.94) and close to unity for the restricted model, which demonstrates the capability of past volatility to explain current volatility (Engle and Bollerslev, 1986). Moreover, the degree of persistence diminishes in a sense (0.75) after including the volume to variance equation in the unrestricted model. To put it differently, volume data seems to absorb some GARCH effects in the volatility but not as much as stated by Lamourerux and Lastrapes (1990). Nevertheless, the volume parameter () as a proxy for information flow is found to be significant but negatively related with volatility in particular contrary to the MDH. Asymmetric distributions noticed previously might be a reason of this fact, which is investigated via EGARCH modeling. We now turn to findings of AR(p)-EGARCH (1,1) method. The coefficients are estimated5 for restricted and unrestricted structures of the base model likely to analyze the effects of volume variable
3 4

Parameters of the mean equations are not provided in the table (for EGARCH model neither), but they are available upon request from the authors Several GARCH (p,q) specifications for p=1,2 and q=1,2 have been estimated. Nevertheless, these models were not found to be successful as GARCH (1,1) according to the log-likelihood test and some selection criteria. The situation is also valid for subsequent EGARCH (1,1) model. Estimations are made under the GED distribution assumption, since it is more proper for asymmetric distributions.

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on persistence in volatility. Different than GARCH (1,1) model, lagged volume series is used this time to consider potential simultaneity problem6. The lag-order (p) for the AR process in mean equation (Eq.4) is identified by one-day, p=1, with respect of AIC. Table-5 reports the results of AR(1)-EGARCH (1,1) specifications together with the diagnosis tests used before. The estimates of 1 coefficient are negatively significant for restricted and unrestricted EGARCH (1,1) designs consistent with the asymmetric features of the return and volume distributions shown in descriptive statistics (see Table-1). Hence, it can be claimed that bad news have greater impact on the volatility of the ISE-30 futures contracts than good news. In addition, the absolute magnitude of the asymmetry coefficient (1) increases remarkably with the inclusion of volume variable to the variance equation. 1 and 2 parameters appear to be highly significant and 2 > 1 in both specifications (without and with volume), implying that past volatility information suppresses the large market shocks in predicting current volatility. Further, both LB and ARCH-LM statistics are insignificant at chosen lags, which indicate the fact EGARCH models are well-specified. The significant negative relation among volatility and volume is confirmed by the estimate of 1 coefficient in the unrestricted EGARCH model. Similarly, the degree of persistence in volatility (1+2) decreases (0.99 to 0.88) to some extent with the fixing of predetermined trading volume (1). However, the presence of mixing variable is not able to express heteroskedastic characteristics of the data satisfactorily. In general, the results of conditional volatility models used in the study, GARCH and EGARCH, do not support the MDH. Since the signs of trading volume parameter are estimated as negative and the volatility persistency in restricted models can not be eliminated significantly by mixing the exogenous variable (volume) to the processes; the MDH is not relevant to enlighten the GARCH effects on ISE-30 futures volatility. This inference contradicts with a number of studies7. From a different perspective, our findings are moderately consistent with the SIAH of Copeland (1976) and Jennings et al. (1981). They all verify the existence of an inverse relationship for volatility and volume dynamics. Tauchen and Pitts (1983) analyze the negative relation between volume and volatility that mostly detected in thinly traded and volatile emerging markets. They point out that infrequent trading might be the reason of the substantial price deviations in these markets. As a result, once the information starts to disperse among investors consecutively, trading volume expands and that causes a fall in volatility.

Harvey (1989) argues that an equation may be a part of a larger system of simultaneous equations. Therefore, the estimating procedures would likely to generate invalid parameters if the endogenous variable (i.e. volume) is correlated with the disturbances in the stochastic part of model To name a few, Lamoureux and Lastrapes (1990), Najand and Yung (1991)

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Table 5:

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Estimates of AR (1)-EGARCH (1,1) Models
EGARCH (1,1) (Restricted) -1.05743** (0.0141) 0.11943* (0.0063) 0.87589* (0.0000) -0.14635* (0.0053) EGARCH (1,1) (Unrestricted) -1.81410* (0.0000) 0.11556** (0.0152) 0.77306* (0.0000) -0.23491* (0.0000) -2.9E-10* (0.0000) 0.8886 19.55 (0.49) 0.80 (0.37)

Parameters & Diagnostics 0 1 2 1 1 1+ 2

0.9953 20.45 LB (20) (0.43) 1.60 ARCH-LM (0.20) * and ** indicates the significance levels at 1% and 5% respectively. Notes: The p-values are given in the brackets. LB (20) represents Ljung-Box-Q statistic with 20 lag for the normalized residuals (level). Further, ARCH-LM demonstrates the F-statistics of the related test. The lag-length (1) for ARCH-LM test is determined by AIC criterion.

5.3. Bivariate VAR Model and Granger Causality Tests

The contemporary relationship between the volatility and volume series is checked by regressing Eq.6 and Eq.7, specified for the bivariate VAR model, separately. As stated before, the volatility series is gathered from the variance predictions of restricted GARCH (1,1) model in the analysis. We use 3-lags for the estimation process of the VAR model due to the basis of AIC commonly applied in the paper. Consequently, the coefficients of i (volume on volatility) and i (volatility on volume) are found8 to be significantly different than zero for the majority of lag-orders in the model. Therefore it can be suggested that there is a feedback relation between the volatility and volume variables. Moreover, the negative estimates of 1, 2 and 2 parameters at different significance levels provide a support to the implications of the GARCH and EGARCH models. Table-6 presents the results of Granger-Causality tests under the null-hypotheses of volume does not Granger cause volatility and vice versa. Accordingly, both hypotheses are rejected significantly referring the evidence of a strong bilateral causality (lead-lag pattern) among the variables consistent with the SIAH.
Table 6: Granger Causality Tests
F-statistics 12.74* 13.84* p-value 0.0052 0.0031

Null Hypothesis Volume does not Granger cause Volatility Volatility does not Granger cause Volume * indicates the significance level at 1%.

6. Conclusion
In this paper, we examined the relationship between trading volume and return volatility for the ISE-30 index futures in TurkDEX. The empirical results indicate that there is a significant interaction between trading volume and return volatility contemporaneously when the volume parameter, taken as a proxy
8

As the prior motive of this section is to examine causality between volatility and volume variables, the results of bivariate VAR model were not presented here but they are available upon request from the authors.

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for the daily information flows, is integrated into the conditional variance equation. However, the degree of volatility persistency diminished slightly with the incorporation of predetermined volume regressor to the models. More importantly, the direction of the relation among the conditional volatility and trading volume is observed as negative in the analyses consistent with the characteristics of emerging markets. Hence, we can not verify the testable implications of the MDH in TurkDEX. Instead, our findings are reasonably in accordance with the SIAH framework since the presence of a lead-lag structure for volume and conditional volatility series is detected by the Granger causality tests. It is also highlighted that the distribution of futures returns follows an asymmetric pattern, which is considered via EGARCH method in the study. The estimates of EGARCH (1,1) model point out the fact bad news have greater effect on the conditional volatility of ISE-30 index futures rather than good news.

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