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Trading Volume and Serial Correlation in Stock ReturnsJohn Y. CampbellHarvard University - Department of Economics; National Bureau of Economic Research (NBER) Sanford J. GrossmanUniversity of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER) Jiang WangMassachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER) October 1992 NBER Working Paper No. w4193 Abstract: This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "non-informational" 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.
Number of Pages in PDF File: 45 working papers seriesDate posted: January 30, 2003Suggested CitationContact Information
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