New evidence on asymmetric return-volume dependence and extreme movements

This paper examines the return-volume dependence structure across six major international stock markets using a dependence-switching copula model. The model allows the return-volume dependence to switch between positive and negative dependence regimes. The empirical results indicate that the return-volume (tail) dependence is asymmetric under the negative and positive dependence regimes, respectively. Next, there is a larger return-volume (tail) dependence for downward price ticks than for upward price ticks when trading volumes are large for most countries, supporting the view of heterogeneous investors with short-sale constraints and negative skewness in returns. Finally, both the intensity of information flow and liquidity trading are important driving forces of the time-varying, return-volume dependence.