Trading Volume and Serial Correlation in Stock Returns
John Campbell (),
Sanford Grossman and
The Quarterly Journal of Economics, 1993, vol. 108, issue 4, 905-939
This paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns. For both stock indexes and individual large stocks, the first-order daily return autocorrelation tends to decline with volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "noninformational" traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.
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Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:108:y:1993:i:4:p:905-939.
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