A Threshold Vector Error Correction Model Of The Stock Price And Trading Volume

Stock prices and trading volume are one of the most important indicators in thesecurities market. This paper is an empirical research of the relations between Chinesestock price and trading volume. Chinese stock price is represented by Shanghai CompositeIndex and trading volume is represented by Shanghai total turnover volume, this papermainly studied the dynamic relationship between the two variables.First, this paper studies the relationship by the method of ADF unit test andcointegration test, the conclusion is that there is a long-term and stable positive correlationbetween price and trading volume. By observing the error term, which is got from theestimated cointegration equation, we can know the time the derivation appears, thedirection and how much of the derivation.The traditional VECM model’s important assumption is that the regulation rate to thelong-run equilibrium is fixed. This paper relaxes that assumption and applies the thresholdVECM model. Then we estimate the coefficients of threshold VECM model and find asignificant threshold effect by the method of Bootstrap. The value of threshold estimationresult is955.576, which means when the deviation of stock price and trading volume isgreater than955.576, the regulation rate to the long-term equilibrium will become greater.