Abnormal Trading Volume and the Cross-Section of Stock Returns

58 Pages Posted: 21 Jul 2016

See all articles by Deok Hyeon Lee

Deok Hyeon Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Min Ki Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: July 19, 2016

Abstract

Stocks with high trading volume outperform otherwise stocks for one week, but subsequently underperform at the longer horizon. We show that such time-varying predictability of trading volume is attributed to abnormal trading activity, which is not explained by past volume. Specifically, we find that the return forecasting power of abnormal trading activity is strongly positive up to five weeks ahead. In contrast, the predictive power of the expected trading activity is negative, and lasts for longer horizons. We further argue that behavioral biases and investors’ attention induces abnormal trading activity, but its price impact is primarily related to behavioral biases. Overall evidence emphasizes the role of behavioral biases and investors’ attention to explain trading volume.

Suggested Citation

Lee, Deok Hyeon and Kim, Min Ki and Kim, Tong Suk, Abnormal Trading Volume and the Cross-Section of Stock Returns (July 19, 2016). KAIST College of Business Working Paper Series No. 2016-008, Available at SSRN: https://ssrn.com/abstract=2812010 or http://dx.doi.org/10.2139/ssrn.2812010

Deok Hyeon Lee (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Min Ki Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

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