Why Does Higher Variability of Trading Activity Predict Lower Expected Returns?

51 Pages Posted: 1 Sep 2010 Last revised: 29 Sep 2015

See all articles by Alexander Barinov

Alexander Barinov

University of California Riverside

Date Written: May 2015

Abstract

The paper shows that controlling for the aggregate volatility risk factor eliminates the puzzling negative relation between variability of trading activity and future abnormal returns. I also find that variability of other measures of liquidity and liquidity risk is largely unrelated to expected returns. Lastly, I show that the low returns to the firms with high variability of trading activity are not explained by liquidity risk and mispricing theories.

Keywords: liquidity, uncertainty, liquidity variability, turnover, trading volume, aggregate volatility risk

JEL Classification: G12, G13, E44

Suggested Citation

Barinov, Alexander, Why Does Higher Variability of Trading Activity Predict Lower Expected Returns? (May 2015). Journal of Banking and Finance, Vol. 58, 2015, Available at SSRN: https://ssrn.com/abstract=1668671 or http://dx.doi.org/10.2139/ssrn.1668671

Alexander Barinov (Contact Author)

University of California Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
585-698-7726 (Phone)

HOME PAGE: http://faculty.ucr.edu/~abarinov/

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