Turning Over Turnover

43 Pages Posted: 11 Nov 2008

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Jianping Mei

New York University (NYU) - Department of Finance

Multiple version iconThere are 4 versions of this paper

Date Written: November 2004

Abstract

The methodology of Bai and Ng (2002, 2003) for decomposing large panel data into systematic and idiosyncratic components is applied to both returns and turnover. Combining this with a GLS-based principal components approach, we demonstrate that their procedure works well for both returns and turnover despite the presence of severe heteroscedasticity and non-stationarity in turnover of individual stocks. We then test Lo and Wang's (2000) theoretical model's restriction that returns and turnover should have the same number of systematic factors. This is songly rejected by the data, suggesting stock price and trading volume may not be compatible under the existing multi-factor asset pricing-trading framework. We also demonsate that several commonly used turnover measures may understate the price impact of stock trading.

Suggested Citation

Cremers, K. J. Martijn and Mei, Jianping, Turning Over Turnover (November 2004). NYU Working Paper No. 2451/27250. Available at SSRN: https://ssrn.com/abstract=1299465

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Jianping Mei

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)

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