Sammendrag
This paper studies GARCH versus Trading Volume effects in asset returns in the Norwegian Equity market using eight firm portfolio and five market index returns for a 10 year period. The results strongly suggest that portfolio returns and market returns are best described by thick tailed GARCH models using trading volume as explanatory variable in the conditional variance equation. Moreover, the Lamoureux and Lastrapes (1990) report of vanishing GARCH effects when trading volume is included in the conditional variance equation, is not supported for neither firm portfolios nor market indices. Only small reductions in GARCH effects are measured for all market indices and for higher valued firm portfolios. The lowest valued firm portfolios actually increased its persistence by introducing the trading volume in the conditional variance equation (a negative trading volume coefficient). Finally, the model signals auto-correlation for the lowly and highly traded and low and high market valued firm portfolios in the Norwegian capital market. The serial correlation is significant for both returns (auto-regressive effects) and residuals (non-synchronous trading). Earlier studies may have wrong conclusion when they not have accounted for this serial correlation in asset returns.
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