The Relationship between Volatility and Trading Volume in the
Chinese Stock Market: A Volatility Decomposition Perspective

Tianyi Wang


Zhuo Huang

China Center for Economic Research, National School of Development
Peking University, Beijing, 100871 We use heterogeneous autoregressive (HAR) model with high-frequency data of Hu-Shen 300 index to investigate the volatility-volume relationship via the volatility decomposition approach. Although we find that the continuous
component of daily volatility is positively correlated with trading volume,
the jump component reveals a significant and robust negative relation with
volume. This result suggests that the jump component contains some “public information” while the continuous components are more likely driven by “private information”. Discussion of the intertemporal relationship supports the information-driven trading hypothesis. Lagged realized skewness only significantly affects the continuous component.

Key Words: High frequency; Price jump; Trading volume.
JEL Classification Numbers: G10, G12, G14.