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Dynamic trading volume and stock return relation: Does it hold out of sample?

Zijun Wang, Yan Qian and Shiwen Wang

International Review of Financial Analysis, 2018, vol. 58, issue C, 195-210

Abstract: This paper studies the dynamic relation between trading volume and stock returns from the perspective of out-of-sample stock return predictability. Evidence from the U.S. suggests that higher returns do follow more intensive trading, especially in the pre-2000 period. However, the ex-ante predictability delivers a small economic gain equivalent to an annual return of 0.73% for a risk-averse investor. This weak out-of-sample predictive power of volume is absent in most of the other major markets. Overall, investors are not likely to gain much financially by “riding the volume curve,” at least at the levels of net profits suggested by our findings.

Keywords: Volume-return relation; Out-of-sample regression; High volume return premium (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2018
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