INTRADAY DYNAMICS OF ASSET RETURNS, TRADING ACTIVITIES, AND IMPLIED VOLATILITIES: A TRIVARIATE GARCH FRAMEWORK

This study investigates the intraday dynamic relationship among asset returns, trading volumes, and volatilities in index derivatives markets using an asymmetric trivariate BEKK-GARCH framework. We analyze the returns and trading activities of KOSPI200 futures and calculate the option-implied volatilities using the Black-Scholes model and a model-free approach (i.e., the VKOSPI). We find that more trading activity in the futures market leads to greater next-period returns and that the trading volume has a bi-directionally positive relationship with the volatility. We also find that greater market volatility increases asset returns but that greater returns decrease volatility, which is consistent with the asymmetric returns-volatility relationship and is explained by the risk-return trade-off and the leverage effect.