Volume shocks and stock returns: an alternative test

Angel Zhong, Daniel Chai, Bob Li, Mardy Chiah

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Using an alternative measure for abnormal trading volume, this article examines the role of volume shock in the generation of stock returns. We find a strong high volume effect at both portfolio and individual stock levels. A strategy that buys stocks experiencing high volume shocks and sells stocks experiencing low volume shocks generates positive returns up to 12 months after formation. The effect is robust after controlling for other stock characteristics that are known to affect stock returns. Our results show that trading volume becomes relatively higher after high volume shocks. Moreover, the relation between volume shocks and stock returns is stronger for stocks that previously failed to catch investors' attention. This finding is consistent with the view that abnormal trading volume proxies for unobserved attention-grabbing events. However, we find no evidence that volume shocks are priced.

Original languageEnglish
Pages (from-to)1-16
Number of pages16
JournalPacific Basin Finance Journal
Volume48
DOIs
Publication statusPublished - 1 Apr 2018

Keywords

  • Asset pricing
  • Attention
  • Trading volume
  • Volume shocks

Cite this

Zhong, Angel ; Chai, Daniel ; Li, Bob ; Chiah, Mardy. / Volume shocks and stock returns : an alternative test. In: Pacific Basin Finance Journal. 2018 ; Vol. 48. pp. 1-16.
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Volume shocks and stock returns : an alternative test. / Zhong, Angel; Chai, Daniel; Li, Bob; Chiah, Mardy.

In: Pacific Basin Finance Journal, Vol. 48, 01.04.2018, p. 1-16.

Research output: Contribution to journalArticleResearchpeer-review

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