The High Volume Return Premium

White Center for Financial Research Working Paper No. 01-99

Posted: 14 Feb 1999

See all articles by Simon Gervais

Simon Gervais

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Ron Kaniel

University of Rochester - Simon Business School; CEPR

Dan Mingelgrin

University of Pennsylvania - The Wharton School

Abstract

The idea that extreme trading activity (as measured by trading volume) contains information about the future evolution of stock prices is investigated. We find that stocks experiencing unusually high (low) volume over a period of one day to a week tend to appreciate (depreciate) over the course of the following month. This effect is consistent across firm sizes, portfolio formation strategies, and volume measures. Surprisingly, the effect is even stronger when the unusually high or low trading activity is not accompanied by extreme returns, and appears to be permanent. The significantly positive returns of our volume-based strategies are not due to compensation for excessive risk taking, nor are they due to firm announcement events. Previous studies have documented the positive contemporaneous correlation between a stock's trading volume and its return, and the autocorrelation in returns. The high volume return premium that we document in this paper is not an artifact of these results. Finally, we also show that profitable trading strategies can be implemented to take advantage of the information contained in the trading volume.

JEL Classification: G12, G14

Suggested Citation

Gervais, Simon and Kaniel, Ron and Mingelgrin, Dan, The High Volume Return Premium. White Center for Financial Research Working Paper No. 01-99. Available at SSRN: https://ssrn.com/abstract=146468

Simon Gervais (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7683 (Phone)
919-883-5078 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty_research/faculty_directory/gervais/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Ron Kaniel

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://rkaniel.simon.rochester.edu

CEPR ( email )

London
United Kingdom

Dan Mingelgrin

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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