Dispersion of Expectations and Trading Volume

Abstract:     
Motivated in large measure by the work of Edward Miller (1977), a number of recent studies have investigated the impact of divergent expectations on security risk and return (see Bart and Masse, 1981; Friend, Westerfield and Granito,1978; and Peterson and Peterson, 1982). In addition, some theoretical work has been done on the impact of divergent expectations on trading volume (see Copeland, 1976; Verrecchia, 1981; and Karpoff, 1984). However, to date no empirical studies have been conducted to test the hypothesized positive relationship between the dispersion of expectations and trading volume. Providing such a test is the objective of this paper.

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