# local price return and volume relationship

I wanted to see how the stock price and volume relationship is locally.

So I tried ranking both the daily return (at day t) and volume (at day t) base on a 30 day rolling window with historical daily stock data and plotted the distribution as shown in the below figure (top). The ranking is based on sorting values in ascending order, and as you can see, when volume is locally high the price return is either locally low or high.

I have also plotted the distribution of ranking of the next day return (at day t+1) and volume (at day t) to see if this "shape" remains, as shown in the figure (bottom), and it does.

Can anyone explain why this shape still remains for day t+1? This kind of price volume relationship must have been researched extensively... is there some classic papers that you quant experts would recommend?

Thanks. A screen shot of the code is provided here.

-
For now, I think these plots demonstrate that when volume is high, the distribution of the price return has a fatter tail, and this fat tail persists for the following day. –  teng Feb 26 '12 at 16:38
I just found myself some reading materials, Tauchen and Pitts 1983 and articles (1,2) based on Karpoff, 1987. –  teng Feb 27 '12 at 12:04

In other words, high volume typically means crowd psychology dominated. And that takes time to work its way out. Out of a given crowd population, people who missed it at t, will try and get in/out at t+1, and those still left will get in/out at t+2, etc. until the crowd is exhausted.