The Real Side of the High-Volume Return Premium
Management Science, Vol. 68, No. 2, Pages 1426-1449, 2022
59 Pages Posted: 1 Feb 2017 Last revised: 22 Feb 2022
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The Real Side of the High-Volume Return Premium
The Real Side of the High-Volume Return Premium
Date Written: October 19, 2020
Abstract
Prior literature demonstrates that an increased trading activity of a firm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.
Keywords: Trading volume; Corporate investment; Financing cash flows; Investor recognition
JEL Classification: E22, G12, G14, M41
Suggested Citation: Suggested Citation