Trading Volume and Stock Investments

Posted: 10 Apr 2009

See all articles by Jeffrey Brown

Jeffrey Brown

Highstreet Asset Management

Douglas K. Crocker

Highstreet Asset Management

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

Date Written: April 9, 2009

Abstract

Previous studies suggest that trading-volume measures may proxy for a number of factors, including liquidity, momentum, and information. For relatively illiquid (typically smaller) stocks, investors may demand a liquidity premium, which can result in a negative relationship between trading volume (as a proxy for liquidity) and stock returns. For relatively liquid (typically larger) stocks-the focus of this article-momentum and information effects may dominate and result in a positive relationship between trading volume and stock returns. Portfolios of S&P 500 Index and large-capitalization stocks sorted on higher trading volume and turnover tend to have higher subsequent returns (holding periods of 1-12 months) than those with lower trading volume.

Keywords: Equity Investments, Other, Financial Markets, Market Microstructure, Performance Measurement and Evaluation, Performance Attribution, Portfolio Management, Equity Strategies

Suggested Citation

Brown, Jeffrey and Crocker, Douglas K. and Foerster, Stephen R., Trading Volume and Stock Investments (April 9, 2009). Financial Analysts Journal, Vol. 65, No. 2, 2009, Available at SSRN: https://ssrn.com/abstract=1375733

Jeffrey Brown

Highstreet Asset Management ( email )

244 Pall Mall Street
London, Ontario N6A 5P6
Canada

Douglas K. Crocker (Contact Author)

Highstreet Asset Management ( email )

244 Pall Mall Street
London, Ontario N6A 5P6
Canada

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

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