Stock Market Volatility and Trading Volume in Pakistan: Examining the Volume–Volatility Relationship

Abstract

Focusing specifically on the Pakistan Stock Exchange (PSX), this paper explores how trading volume relates to stock-market volatility in Pakistan. Many view trading volume as a key gauge of market participation, incoming information, differences in investor opinion, and shifting market conditions. Even so, both the strength and the direction of that volume–volatility link can change from one market or economic regime to another. To examine this, the study sets out a quantitative time-series framework relying on daily data for the KSE-100 Index and chosen high-turnover stocks from 2018 through 2026. Closing prices will yield daily log returns, and conditional market volatility will be modeled via Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-family techniques. To capture both market participation and the transmission of information, the study will draw on trading volume, turnover, and shifts in trading activity. The empirical work will cover descriptive metrics, correlation tables, unit-root and ARCH-effect tests, along with symmetric and asymmetric GARCH setups such as GARCH and EGARCH. Next, Granger causality tests will assess whether trading volume helps predict future volatility, or if volatility shifts are what drive changes in trading activity. Sensitivity checks will test different volume proxies alongside alternative model specifications. By taking in the post-2018 period—marked by severe economic uncertainty and disruptions in the market—the study aims to supply fresh empirical material on Pakistan's volume–volatility link. These results could help clarify whether heavier trading goes hand in hand with higher volatility, sharper processing of market information, or both at once.