The stock price–volume relationship in emerging stock markets: the case of Latin America

This paper examines the stock price–volume in a set of Latin American markets. Using monthly index data, we first document a positive relation between volume and both the magnitude of price change and price change itself, a finding reported by many for developed markets. However, using a vector autoregression (VAR) analysis to test for Granger causality, we fail to find strong evidence on stock price changes leading volume. This is contrary to evidence reported by studies on developed markets. In fact, we find that in four of the six markets we look at, volume seems to lead stock price changes. Thus, we conclude that this set of emerging markets with different institutions and information flows than the developed markets, do not present similar stock price–volume lead–lag relation to the preponderance of studies employing US data. The implication of these results is that differences in institutions and information flows in this set of emerging markets are important enough to affect the valuation process of equity securities and warrant further analysis.