Oekonometrisches FS

Gertrude Scheiner gerti@WSR.AC.AT
Mon, 13 May 1996 12:08:48 EDT

(M. Deistler, R. Alt, R. Kunst)

Donnerstag, 23. Mai 1996

The Dynamics of Stock Prices and Volume
in a Model of Nontradable Asset

Chiente HSU
(University of Bern)

In this paper we develop a simple, fully dynamic asset
pricing model in which agents have rational expectations
and are heterogeneous in their investment opportunities.
In this model, trading takes place because of changes in
the excess return of the nontradable asset. We show that
the equilibrium price and volume depend on the dividends
of the stock as well as the excess return on the nontradable
asset which are assumed to follow ARCH (GARCH) processes.
The dynamics of stock prices and trading volume implied by
the structural model can explain the following empirical
regularities found in the high frequency stock data:
(i) positive relation between volume and the magnitude of
price changes; (ii) positive relation between volume and
stock price volatility and (iii) positive autocorrelation
of volume data. By employing the Efficient Method of Moment
estimator developed by Gallant and Tauchen to the Dow Jones
index and total NYSE trading volume we investigate to what
extent the structural model can account for the observed
joint dynamics of return and trading volume in the stock markets.
The structural model implies a distribution of stock prices which
is much closer than that observed in the data. The model can
account for the VAR and ARCH features of the data. In addition,
the estimation results coincide with findings of many previous
empirical studies in the relations between stock prices and volume.

Ort:    HS II
Zeit:   9.00 Uhr c. t.