NIFT UG 2013 Question Paper with solutions

Directions: Study the passages below and answerthe questions that follow each passage.  Having investigated the nature of the relationship between price and trading volume for 50 Indian stocks, our findings indicate evidence of positive contemporaneous correlation between price changes and trading volume in Indian stock markets. All the stocks, except Reliance Power, show asymmetric behaviour, which is in line with the research findings. Investigation of dynamic relationship between returns and trading volume shows very interesting results. We find evidence that in the Indian market, past returns cause trading volume, which can be easily conceived in an emerging market where the state of development of the market possibly does not allow instantaneous information dissemination. These results are further supported by the variance decomposition. However, in most cases the relationship lacks economic significance even though it is statistically significant. The results of impulse response analysis indicate that both returns and volume are mostly affected by their own lag and that volume is more autoregressive than returns, that is, any shock in either returns or volume does not affect the return series beyond one lag. In case of unconditional volatility and trading volume, we find a positive contemporaneous relationship between trading volume and unconditional volatility