Cross‐country variations in volume‐price variability relationship in Asia
| Date | 02 August 2013 |
| DOI | https://doi.org/10.1108/JABS-Jul-2012-0037 |
| Published date | 02 August 2013 |
| Pages | 203-213 |
| Author | Wei Hua,Rui‐Xiang Wang,Peihwang Wei |
| Subject Matter | Strategy |
Cross-country variations in volume-price
variability relationship in Asia
Wei Hua, Rui-Xiang Wang and Peihwang Wei
Abstract
Purpose – The purpose of this paper is to investigate the effects of country factors, particularly the
cultural factors, on the dynamic relation between market-wide trading activity and price variability in nine
Asian countries.
Design/methodology/approach – The paper utilises VAR, impulse response function, and regression.
Findings – The results show that individualism and masculinity are positively related to
volume-variability relation; other country factors including information asymmetry, financial
development, short sale restriction, and age distribution are also closely related to the
volume-variability relation. Specifically, the return-variability relation is stronger in less
financially-developed countries with short-sale constraints and high information asymmetry.
Originality/value – Although there is a large body of literature on volume-variability relationship, cultural
and other country factors have never been incorporated to account for such a relationship.
Keywords National cultures, Financial markets, Asia, Volume-price volatility relation,
Asian financial markets, Cultural factors
Paper type Research paper
1. Introduction
In recent years, a growing body of literature has shown cultural factors having effects on
many financial decisions and strategies. Examples include momentum strategy and trading
behavior (Chui et al., 2010), financial systems (Kwok and Tadesse, 2006), capital structure
(Chui et al., 2002; Li et al., 2011), protection of investor rights (Stulz and Willaimson, 2003),
mergers (Aybar and Ficici, 2009; Reus and Lamont, 2009; Ahern et al., 2011) and dividend
policy (Fidrmuc and Jacob, 2010; Shao et al., 2010). Of particular interest here is the paper
by Chui et al. (2010), who find that the momentum effect in the stock market is stronger in
countries with stronger degrees of individualism. Their results imply that cultural factors
affect trading behavior. It is hypothesized here that since cultural factors affect trading, they
might also affect the relation between trading volume and price variability.
In this paper,we examine the relation between trading volume and price variability patterns at
the market level in nine Asian countries and whether cross-country variations in volume and
price variability relation might be explained by cultural and other country factors. The sample
countriesare restricted to those in Asia mainly because we cannot find necessary data for many
non-Asian countries; restricting to one region also reduces the regional effectsnot accounted
for by the variables used in this study. More specifically, in the first part, we examine the
relationship between stock trading volume and variability. In the second part, we examine
whether cultural and other cross-country factors affect the volume-variability relationship.
Although there is a large body of literature on volume-variability relationship, culture and
other country factors have never been incorporated to account for such relationship. Hence,
one contribution is to examine the effects of country factors on the volume-variability
DOI 10.1108/JABS-Jul-2012-0037 VOL. 7 NO. 3 2013, pp. 203-213, QEmerald Group Publishing Limited, ISSN 1558-7894
j
JOURNAL OF ASIA BUSINESS STUDIES
j
PAGE 203
Wei Hua is based in the
Department of Business
Administration, Livingstone
College, Salisbury, North
Carolina, USA.
Rui-Xiang Wang is based in
the Department of Human
Resource and Public
Relations, Da-Yeh
University, Changhua,
Taiwan. Peihwang Wei is
based in the Department of
Economics and Finance,
University of New Orleans,
New Orleans, Louisiana,
USA.
Received 28 July 2012
Revised 16 November
Accepted 7 December 2012
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