“Does It Take Volume to Move the EUR/PLN FX Rates?” Evidence from Quantile Regressions
DOI:
https://doi.org/10.12775/DEM.2012.003Keywords
volume-return relationship, market microstructure, FX trading, quantile regres-sionAbstract
This study investigates the impact of trading volume on selected quantiles of the EUR/PLN return distribution. Empirical results obtained with the quantile regression approach confirm that an increase in the turnover is associated with a significant increase in the dispersion of the corresponding return distribution. We divided the trading volume into its expected (antici-pated) and unexpected (unanticipated) component and found that the unexpected volume shocks have a significantly larger impact on the dispersion of the return distribution. We also observed that the volume-return relationship is nonlinear; the dependence is stronger with more extreme quantiles. Moreover, after accounting for a conditional volatility measure as a controlling explan-atory factor for the quantile dynamics, the impact of the expected volume declines yet remains significant especially for the most extreme quantiles.
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