Price Common Volatility or Volume Common Volatility? Evidence from Taiwan’s Exchange Rate and Stock Markets

This paper investigates the common volatility structure of Taiwan’s stock and exchange rate markets. The two markets are often linked together and we are interested in knowing whether price or volume is a good proxy to pursue this issue. We claim that Taiwanese government interventions distort the timing of conventional price volatility clustering in the two markets. The unrestricted trading volumes instead reveal more about the true information than that of price of the market. We find that common volatility does exist in stock and exchange markets and this fact is more easily to be uncovered by using trading volume than by using prices.