Measuring the dynamics of the stock market’s volume-price relationship: a new Hurst-based market-trend index

ABSTRACT

Despite the rich literature on the relationship between trading volumes and stock prices, few studies explore the underlying linkage arising from multifractality. Here, we propose a Hurst-based market-trend index measuring the dynamic cross-correlation between volumes and prices, and illustrate its usefulness with applications on the Chinese stock market. We show that the new index can reflect the volume-price relationship’s underlying changes with varying market conditions across different sectors. We also show how the new index dominates the change in the Granger causality. Further economic analyses demonstrate how the new index can be used for improving trading strategies. The insights on the underlying relationship between stock volumes and prices are important for investment decisions and have insightful policy implications.

KEYWORDS:

• Multifractal analysis
• stock price
• trading volume
• Hurst-based market-trend index
• Chinese stock market

JEL CLASSIFICATION:

• G00
• G10
• G12

Disclosure statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Data availability statement

The data that support the findings of this study are available from the corresponding author, [Dongkai Zhao, Email address: [email protected]], upon reasonable request.

Additional information

Funding

The work was supported by the National Social Science Fund of China [21CTJ012]; Major Program of National Social Science Foundation of China [23&ZD048]; Humanities and Social Science Project of the Ministry of Education of China [19YJC790171]; Basic Scientific Research Project of Colleges and Universities of Liaoning Provincial Department of Education [LJKZ1037].