Trading Volume Effects of Moving Average Heuristics

Abstract

We investigate the trading volume effects of moving average heuristics drawn from technical analysis. Our empirical analyses demonstrate that these heuristics lead to significant abnormal trading activity. In comparison to normal levels, trading activity increases by a significant 25-55% on buy signal days and 15-25% on sell signal days, respectively. This result is robust to controlling for diverse stock characteristics, historic performance records, common attention-grabbing proxies, visibility proxies, corporate news, analyst recommendations, and firm financial disclosure. The magnitude of the observed surge in trading volume suggests that many investors perceive signals from simple heuristics as a reason to trade.

Keywords: Investor heuristics, technical analysis, stock trading volume

JEL Classification: G11, G12, G14