Abstract

This paper aims at examining how trading activity impacts price volatility. We propose first to estimate the return volatility following Jones, Kaul and Lipson (1994) and Chan and Fong (2000). Second, we will attempt to detect the best measure of the trading activity that better explains the price volatility.

For this reason, we use a sample of 48 listed firms in the Tunisian Stock Exchange “the BVMT” during the period from 02/01/2015 to 29/05/2015.

Results show the significance of the size of trades beyond that of the number of trades and traded capitals. We rank the stocks into three trade size categories based on their market capitalization in order to examine whether daily price volatility increases more with the number of shares traded in a particular size category than with other size categories. We found a negative relation between trading activity and price volatility for large and medium size firms and a positive relation for the smallest stocks.

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