The market microstructure explains the association between the trading volume and stock price (return) movements. The flow of new information into the market affects these movements, hence causing return volatility. There are two important theories that study the association between the trading volumes and return volatility of stocks, one is the Sequential Information Arrival Hypothesis (SIAH), and the other is Mixture of Distribution Hypothesis (MDH). the literature found returns on Saudi stock market featured with volatility clustering where the distribution of returns is not normal. Moreover, the Saudi stock market is sensitive to fluctuations in the stock market. Furthermore, most of the research on stock market volatility has been found in the western world, and the number of studies in this area are less in Saudi context. The study of intraday stock volatility by employing E-GARCH model and establishing lead-lag relationships between volume and returns might capture the market fluctuations in a better manner. The study expects that the TASI stocks follow a sequential pattern since there is an expectation of lead – lag pattern between them. It can also be expected that larger changes in volatility are followed by large price change in stocks, and vice-versa. Further, it is expected that the returns on Saudi stock market follow a non-normal distribution pattern, and the market volatility is found to be consistent. The study of stock market volatility in Saudi stock market is of utmost significance to market investors and treasury managers. The results of the current study might add value to the stock market and the investors in investment management, such as allocations of assets, construction of investment portfolio, managing risk, etc.
A 12 month project under Deanship of Scientific Research.
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