Risk-return-volume causality on the Croatian stock market

• Published in: Ekonomski vjesnik Vol. 37; no. 1; pp. 79 - 92
• Main Author: Vidović, Jelena
• Format: Journal Article Web Resource
• Language: English
• Published: Osijek Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku 01.01.2024; Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek; J.J. Strossmayer University of Osijek, Faculty of Economics; Faculty of Economics and Business in Osijek
• Subjects: Causality; Economy; Emerging markets; Financial Markets; Granger causality; Rates of return; return volatility; Securities markets; Standard deviation; Stock exchanges; Stock prices; stock returns; trading volume; Turnover; Volatility; Zagreb Stock Exchange; Croatia; return volatility; trading volume; stock returns; Zagreb Stock Exchange; Granger causality
• ISSN: 0353-359X; 1847-2206
• DOI: 10.51680/ev.37.1.6

Purpose: Causality between stock returns, volatility and traded volume for 10 most liquid stocks from Zagreb Stock Exchange (ZSE) is examined in this paper. Methodology: The paper relies on historical daily data regarding return, standard deviation and turnover for the period from 2015 to 2021. Vector Autoregressive Models (VARs) were estimated for each stock individually. Based on estimated VAR models, Granger-causality tests were performed to estimate causality between trading volume, stock returns and volatility for most liquid stocks from the Croatian stock market. Results: Results strongly confirm that traded volume Granger causes volatility. Return remained irrelevant in terms of predicting traded volume and volatility of stock returns. Conclusion: Causality from return to volatility or causality from volatility to return can be confirmed only in shorter periods. Traded volume causes volatility for the majority of stocks regardless of how volatility was calculated. Causality from volatility to return and causality from volatility to volume are valid for half of the sample and need to be further investigated.