Volume versus GARCH effects reconsidered: an application to the Spanish Government Bond Futures Market

The mixture distribution model is one of the benchmarks for modelling the relationship between volume and return. A basic variable in that theoretical construction is the number of intraday equilibria, which is empirically unobservable. This paper re-examines the finding in Lamoureux and Lastrapes (Journal of Finance, 45, 1990) using alternative proxies for the number of intraday equilibria, which are included in the conditional variance equation of a GARCH model. The results show, using data of the Spanish Government Bond Futures Market for the 1992–94 period, that the number of transaction clusters and the average volume have a positive effect on conditional volatility.