The economic and predictive value of trading volume growth: a tale of three moments

Boyce Watkins

Applied Financial Economics, 2007, vol. 17, issue 18, pages 1489-1509

Abstract: This work studies long-horizon return predictability of volume growth realizations. High-mean volume growth is argued to reduce estimation risk and high volatility and skewness are interpreted as factors which increase estimation risk. It is found that stocks with high-mean trading volume growth during the past 12 months experience strong positive excess returns that do not reverse themselves over the next 5-years. Stocks with high volatility and skewness of excess turnover growth have negative future risk-adjusted returns which are economically significant. The conclusion is that increases in trading volume growth are predictive of future returns.

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