Why does higher variability of trading activity predict lower expected returns?
نویسنده
چکیده
The paper shows that controlling for the aggregate volatility risk factor eliminates the puzzling negative relation between variability of trading activity and future abnormal returns. I find that variability of other measures of liquidity and liquidity risk is largely unrelated to expected returns. Lastly, I show that the low returns to firms with high variability of trading activity are not explained by liquidity risk or mispricing theories. 2015 Elsevier B.V. All rights reserved.
منابع مشابه
Past Informed Trading and Past Dealer Inventory in US Equity Markets
Several studies document that past returns and past trading volume predict shortterm stock returns. This study considers two new variables: the past number of trades signed as purchase and sale. These variables also predict weekly US stock returns and contain information that is distinct from past returns and past trading volume. Combined trading strategies outperform strategies based on past r...
متن کاملInternet Message Board Activity and Market Efficiency: A Case Study of the Internet Service Sector using RagingBull.Com
This paper examines the relationships between Internet message-board activity and abnormal stock returns and between Internet message-board activity and abnormal trading volume. This study focuses on RagingBull.com and Internet service sector stocks. I choose RagingBull.com because its format enables me to measure investor opinion objectively. I find that on days with abnormally high message ac...
متن کاملAre Institutions Momentum Traders?
This paper examines institutional trading in momentum portfolios. The key result is that institutions engage in momentum trading over the subsequent 3 quarters, buying winners and selling losers, in response to past returns but not past earnings news. Momentum trading is strengthened, however, when returns are accompanied by earnings news of the same sign. While past high returns predict future...
متن کاملTrading Turnover and Expected Stock Returns: The Trading Frequency Hypothesis and Evidence from the Tokyo Stock Exchange
This paper tries to find a widely accessible measure of liquidity and studies its impact on asset pricing. Using trading turnover as a measure of liquidity and the 19761993 Tokyo Stock Exchange data, I find that, cross-sectionally, stocks with higher turnover tend to have a lower expected return. This evidence is consistent with predictions derived from an Amihud-Mendelson type of transaction c...
متن کاملOulu Business School
Empirical studies have analyzed how investors trade and perform in the financial markets. The studies show that rational trading needs do not explain the excessive manner of trading shown by the investors. Theoretical models offer overconfidence as one of the explanations for irrational trading behavior. Overconfidence is a psychological trait, argued to cause the investors to misinterpret usef...
متن کامل