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Arbitrage risk and the turnover anomaly

Pin-Huang Chou, Tsung-Yu Huang and Hung-Jeh Yang

Journal of Banking & Finance, 2013, vol. 37, issue 11, 4172-4182

Abstract: A strong turnover premium exists such that stocks with lower turnover have higher future returns in the 5years following their formation than those with higher turnover. This turnover premium cannot be explained by existing asset-pricing models, a risk-based liquidity factor, or anomalies such as size, book-to-market ratio, or momentum. Further analysis indicates that the turnover premium is greater for stocks with higher idiosyncratic volatility, higher transaction costs, lower institutional ownership, and lower investor sophistication, which implies it is consistent with the mispricing explanation based on arbitrage risk.

Keywords: Turnover; Asset-pricing anomaly; Arbitrage risk; Investor sophistication; Differences of opinion (search for similar items in EconPapers)
JEL-codes: C1 G1 G2 (search for similar items in EconPapers)
Date: 2013
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