International stock return co-movements and trading activity

• DOI: 10.1016/j.frl.2017.06.006
• Publication Date: 2017-06-10T10:00:31Z
• Authors: Xin Sheng; Janusz Brzeszczyński; Boulis M. Ibrahim
• Keywords: Return spillovers; 0502 economics and business; 05 social sciences; GARCH models; N100; Trading volume; L100; Interaction effects; HG

This paper analyses return co-movements across eight major international stock markets while considering the nature of motives to trade for a given daily price change. Daily volume as an information signal is dissected into quintiles and its interaction with returns is examined. The results show that international return spillover effects are sensitive to different levels of trading activity and price changes driven by liquidity-based and information-based trades can both spill over across borders. We find trades originating in Asia are information-based, those originating in America are liquidity-based, and those originating in Europe are a mixture of these two types.