An Empirical Study on the Relationship between Turnover Rate and Stock Returns in Chinese Stock Market

Xinyuan Xiao, Liu-liu Kong

Abstract


There's a significant problem in Chinese stock market that turnover rate remains very high for the past twenty years, which is much higher than that of western developed countries. Stock returns in Chinese stock market, with high volatility, is not as stable as that of western developed countries as well. Is there any specific correlation between turnover rate and stock returns? If there is, what is it? Is there possibility that high stock returns can be achieved if stock investment is made based on careful observation of turnover rate? In this paper, from the perspective of Shanghai Stock Exchange index and volatility, with monthly sample data from 2009 to 2012, an empirical analysis on the relationship between turnover rate and stock returns is made by using the econometric methods of Granger causality analysis and VAR model. The result indicates that, different from many scholars' conclusions, turnover rate has little influence on stock returns. On the contrary, the latter has large positive influence on the former.

Keywords


turnover rate; VAR model; impulse response function

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