Expected return, volume, and mispricing

Yufeng Han, Dashan Huang, Dayong Huang and Guofu Zhou

Journal of Financial Economics, 2022, vol. 143, issue 3, 1295-1315

Abstract: We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation methods, and controlling for variables that are known to have amplification effects on mispricing. By attributing trading volume to investor disagreement, we show that our results are consistent with the recent theoretical model of Atmaz and Basak (2018) in that investor disagreement predicts stock returns conditional on expectation bias.

Keywords: Turnover; Trading volume; Mispricing; Disagreement; Expectation bias (search for similar items in EconPapers)
JEL-codes: D03 G12 G14 G17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:3:p:1295-1315

DOI: 10.1016/j.jfineco.2021.05.014

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