Dynamic Volume-Return Relation of Individual Stocks
Dynamic Volume-Return Relation of Individual Stocks
Llorente, Guillermo; Michaely, Roni; Saar, Gideon; Wang, Jiang
2002-07-16 00:00:00
We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves, while returns generated by speculative trades tend to continue themselves. We test this theoretical prediction by analyzing the relation between daily volume and first-order return autocorrelation for individual stocks listed on the NYSE and AMEX. We find that the cross-sectional variation in the relation between volume and return autocorrelation is related to the extent of informed trading in a manner consistent with the theoretical prediction.
http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.pngThe Review of Financial StudiesOxford University Presshttp://www.deepdyve.com/lp/oxford-university-press/dynamic-volume-return-relation-of-individual-stocks-jhjsSf0Svy
Dynamic Volume-Return Relation of Individual Stocks
We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves, while returns generated by speculative trades tend to continue themselves. We test this theoretical prediction by analyzing the relation between daily volume and first-order return autocorrelation for individual stocks listed on the NYSE and AMEX. We find that the cross-sectional variation in the relation between volume and return autocorrelation is related to the extent of informed trading in a manner consistent with the theoretical prediction.
Journal
The Review of Financial Studies
– Oxford University Press
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