The Relationship between Volume's Components with Return؛ Case Study in Tehran Stock Exchange Focusing on Intraday Transactions and Elimination of U Shaped Pattern

The aim of this paper is to investigate the relationship between transaction's volumes and return volatility with focusing on transaction's volume components including the average size of transactions and number of transactions. Transaction's price and volume intraday data for thirty largest companies listed on the Tehran Stock Exchange Index between 2011 and 2015 are used in this paper. This sample has been choosed based on market value that is equal to 67 percent of market value of Tehran Stock Exchange. Therefore, this sample can be a good proxy for stock market. In order to investigate the volume and volatility relationship, this paper uses the auto regressive moving average (ARMA) and conditional heteroskedasticity methods. Firstly, it confirms the negative relationship between volume and volatility. Secondly, including volume in the conditional variance of stock returns increases the persistence of volatility in most stocks. Thirdly, it shows that the negative relationship between volatility and volume is generated by the size of trades. These results are robust, even after elimination the impact of the intraday patterns.