Trading Volume and Stock Investments

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 (a...

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Bibliographic Details
Published in:Financial analysts journal 2009-03, Vol.65 (2), p.67-84
Main Authors: Brown, Jeffrey H., Crocker, Douglas K., Foerster, Stephen R.
Format: Article
Language:English
Subjects:
Comparative analysis
Equity Investments
Financial investments
Financial portfolios
Growth stocks
Hypotheses
Institutional investments
Investment policy
Investments
Investors
Liquidity
Market capitalization
Price increases
Price momentum
Rates of return
Securities trading volume
Stock exchange
Stock exchanges
Stock prices
Stock shares
Studies
Trade volume
U.S.A
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Summary: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.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v65.n2.4