 How time horizons and arbitrage cost influence the turnover premium?Daye Li and Xinmin Zhang Applied Economics, 2019, vol. 51, issue 44, 4833-4848 Abstract: There are multiple theories for the causal relation between stock turnover and expected return. The risk theory argues that stocks with high turnover generally have high information uncertainty, and thus high subsequent returns are required to compensate for the increased risk. By contrast, the theory of heterogeneous beliefs considers that high-turnover stocks have high speculative values and tend to be overpriced. We find that the information contained in stock turnover is multidimensional and controlling time horizons and arbitrage cost contributes to the reconciliation of the theories of risk compensation and heterogeneous beliefs. Our result shows that expected return is positively correlated with short-term turnover, and negatively correlated with long-term one. The premium on short-term turnover is consistent with the explanations based on transaction cost and liquidity risk. The premium on long-term turnover is much more pronounced among stocks with high arbitrage cost and can be largely explained by the mispricing theory and heterogeneous beliefs. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:51:y:2019:i:44:p:4833-4848 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2019.1602713 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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