Do Trading Volume and Volatility Relationship Differs in Conventional and Islamic Stocks Evidence from Boursa Kuwait

In this paper, we present the results of a study on the effect of daily trading volume on the persistence of time-varying conditional volatility for Boursa Kuwait (BK). The test results were mixed. As the mixture-of-distribution hypothesis (MDH) implies, the inclusion of a contemporaneous volume in the equation of conditional variance reduces the persistent volatility of most stock series. However, the trading volume did not contribute to the removal of the ARCH or GARCH effects. The negative contemporaneous trading volume coefficient in a third of the cases provided evidence running counter to MDH predictions. Furthermore, lagged trading volumes appeared to display the predictable power of asset variability, which further buttresses and bolsters the sequential information arrival hypothesis. Moreover, we found that in more than a third of the series, the sign of the coefficients of contemporaneous and lagged trading volumes was negative, which contradicts the extensive evidence. However, the results do not lend support to the hypothesis of the effect of national cultural dimensions, market development and the level of transparency on the strength of the volume–volatility relation. The findings also show no significant difference between conventional and Islamic stocks on the relation between volume and volatility