TESTING FOR LINEAR AND NONLINEAR GRANGER CAUSALITY IN THE STOCK RETURN AND STOCK TRADING VOLUME RELATION: MALAYSIA AND SINGAPORE CASES

Abstract

This study aims at examining the short-run linear and nonlinear Granger causality between stock return and trading volume in Malaysia and Singapore cases based on the Vector Autoregression (VAR) model and Taylor expansion of the nonlinear model, proposed by PéguinFeissolle, et al. (2008), respectively. We find evidence of significant bidirectional nonlinear causality between returns and trading volume in Malaysia case while unidirectional nonlinear causality from trading volume to stock return in Singapore case, which may establish useful base for future empirical work in considering nonlinearity studies for the dynamic relationship of stock return and trading volume.