Information Arrival and Volatility: Evidence from the Saudi Stock Exchange (Tadawul)

Abstract

This paper investigates the validation of the Mixture of Distributions Hypothesis (MDH) using trading volume and number of trades as contemporaneous proxies for information arrival in 15 sector indices of the Saudi Stock Exchange (Tadawul) using the TGARCH model. Findings provide strong evidence for the validity of the MDH for the Saudi market. Volatility persistence decreases when the trading volume and the number of trades are included in the conditional variance equation. The most striking finding is that contemporaneous number of trades is a better proxy for information arrival than trading volume, interacting with volatility in a manner anticipated under the MDH. This can be attributed to the unique characteristic of the Saudi equity market where only domestic investors are allowed to execute trade transactions. Further, the results reveal that the leverage effect was amplified, indicating a more pronounced asymmetric effect of bad news on volatility.

Key words: Volatility, Trading volume, Number of trades, MDH, Tadawul.
JEL: G14, G15.

U radu se istražuje volatilnost Mešavine distribucionih hipoteza (MDH) korišćenjem obima prometa i broja trgovina kao vremenski proksi za pristizanje informacija u 15 sektorskih indeksa saudijske berze (Tadawul) korišćenjem TGARCH modela. Rezultati pružaju jaku evidenciju volatilnosti MDH za saudijsko tržište.Upornost volatilnosti se smanjuje kada se obim trgovine i broj trgovina uključe u jednačinu za kondicionalnu varijansu. Najupečatljiviji nalaz je da je tekući broj trgovina bolji proksi za pristizanje informacija nego obim prometa, u interakciji savolatilnošću na način anticipiran prema MDH. To može biti prepisano kao jedinstvena karakteristika saudijskog tržištakapitala u kom je jedino domaćim investitorima dozvoljeno da izvršuju trgovinske transakcije. Dalje, rezultati otkrivaju da je efekat leveridža pojačan, ukazujući na višenaglašene asimetrične efekte loših vesti na volatilnost.

Ključne reči: Volatilnost, obim prometa, broj trgovina, MDH, Tadawul.