Ownership acceleration and the volume volatility-return link: Evidence from China

Xiaoyan Lei and Yuegang Zhou

Pacific-Basin Finance Journal, 2025, vol. 93, issue C

Abstract: This study examines the inverse relationship between the variation coefficient of daily trading volume (VCV) and future stock returns in China's retail-dominated equity market. We demonstrate that VCV very possibly serves as a salient signal and triggers overreaction among small and medium-sized retail investors, leading to transient price surges followed by reversals. Our findings are robust to various statistical tests and sample definitions. Crucially, this relationship depends on the trading behavior of investors with market advantages. As their ownerships accelerate, the negative VCV-return correlation diminishes and even reverses. Our findings redefine investor heterogeneity as a key driver of market efficiency, emphasizing the dual role of VCV as both a behavioral factor and an information signal. These insights inform strategies to exploit mispricing and policies to enhance market stability.

Keywords: Volume variation; Information asymmetry; Attention; Investor heterogeneity; Market efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25002434

DOI: 10.1016/j.pacfin.2025.102906

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