Dynamic Volume-Return Relation of Individual Stocks

Guillermo Llorente, Roni Michaely, Gideon Saar and Jiang Wang

No 8312, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves while returns generated by speculative trades tend to continue themselves. We test this theoretical prediction by analyzing the relation between daily volume and first-order return autocorrelation for individual stocks listed on the NYSE and AMEX. We find that the cross-sectional variation in the relation between volume and return autocorrelation is related to the extent of informed trading in a manner consistent with the theoretical prediction.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2001-05
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: AP
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Citations: View citations in EconPapers (17)

Published as Llorente, G., R. Michaely, G. Saar and J. Wang. "Dynamic Volume-Return Relation Of Individual Stocks," Review of Financial Studies, 2002, v15(4), 1005-1047.

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