Abstract
In this paper, we analyze the empirical relationship between stock return and trading volume
based on stock market cycles. Using daily data for Jakarta Composite Index (JCI) closing price and
trading volume from 2010 to 2014, we identify the bull and bear phases, then we analyze the return?
volume relationship in both contemporaneous and dynamic context. We find that (1) there is a positive
contemporaneous return?volume relationship in both bull and bear markets, which is only significant
in bull markets; (2) no evidence of asymmetry in contemporaneous relationship is found; and (3)
there exists a positive unidirectional causality from stock return to trading volume. Our research has
two implications. First, in the bull market, overconfidence may grow with long-lasting past success
and there is also momentum or positive feedback trading. Second, stock return is able to forecast
trading volume. In addition, our findings are robust for different sample period and data frequency.
