Price-Volume Granger Causality Tests in the Egyptian Stock Exchange (EGX)

Abstract

Using weekly Egyptian stock exchange data on the 34 most active companies stretching from 2011 to 2017, this study finds that price changes Granger cause trading volume up to 8 weeks (lags), supporting the sequential information arrival model in the EGX. We also find a robust contemporaneously positive asymmetric relationship between price change and trading volume, confirming two well-documented characteristics of the price-volume relationship as well as two major adages of Wall Street: “it takes volume to move prices” and “volume in bull markets is heavier than volume in bear markets”. Overall, our results imply that although there is some sequential diffusion of information, the EGX’s efforts at improving its microstructure through initiatives such as the 2009 Presidential Degree on structure and governance, appear to have helped in improving instantaneous access to information – as exemplified by our evidence of strong contemporaneous positive price-volume relationship.