Trading Volume and Time Varying Betas*

Alpha or beta in the eye of the beholder: what drives hedge fund flows?

Christopher Hrdlicka

Review of Finance, 2022, vol. 26, issue 1, 79-116

Abstract: I show that increased turnover accompanies changes in stocks’ risk exposures. A one standard deviation decrease in a stock’s market beta increases turnover as much as 25%. The sensitivity of turnover to beta changes has grown over time. Market beta changes explain as much as 5% of the monthly cross-sectional variation in turnover. VAR decompositions of returns show turnover is more strongly associated with discount rate news than cash flow news. This mechanism provides a new channel for turnover combined with realized returns to predict long horizon returns and cash flow changes. Further, this mechanism can amplify many prior explored motives for trade.

Keywords: Return predictability; Dividend predictability; Beta estimation; Turnover (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022
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