An Empirical Research On The Contemporaneous Relation Between Return And Volatility

The relationship between stock volatility and return has been a very important research topic in the stock market of our country.As the high frequency trading has been gradually used in the securities market,it has more and more impact on the order of the securities market.Given that,scholars have done some researches on the relationship between stock returns and intraday volatility which mainly focused on the lag return-volatility relation.However,some literature indicates that the lag return-volatility relation is largely due to a positive contemporaneous relation between stock returns and stock volatility and the stock intraday data suggests that contemporaneous return is the decisive factor in the current volatility.Therefore,this paper studied the contemporaneous return-volatility relation based on previous studies using the intraday trading data.More specifically,the relationship between stock volatility and return was studied using the intraday data of 1 minutes and 5 minutes of 2497 listed companies of China in 2014.The empirical results showed that the stock volatility and return exhibited a positive contemporaneous relationship.When the stock contemporaneous return is positive(negative),there is a significant positive(negative)relationship between returns and volatility which is an obvious "herding" phenomenon.This paper used behavioral economics theory to explain such relationship and carried out a preliminary empirical analysis which supported it.The empirical results also show that the stock volatility is asymmetric,in the 1minute interval the contemporaneous return coefficients are consistently greater for the negative returns;in the 5minute interval the contemporaneous return coefficients are consistently greater for the positive returns.The research of this paper not only enriches the research on the relationship between stock volatility and return,but also it is important for strengthening the supervision of high frequency trading and protecting the interests of small and medium investors in China's stock market.