The High Volume Return Premium and Changes in Investor Recognition

Posted: 20 Aug 2013 Last revised: 14 Feb 2014

See all articles by Narelle Gordon

Narelle Gordon

Macquarie University; Macquarie University, Macquarie Business School

Edward J. Watts

Macquarie University, Macquarie Business School

Qiongbing Wu

Western Sydney University

Multiple version iconThere are 2 versions of this paper

Date Written: October 2013

Abstract

Utilising unique shareholding data for Australian equities we examine whether the high volume return premium (‘HVRP’) is associated with changes in investor recognition as has been posited in various empirical studies. We confirm the existence of the premium in Australia as stocks which experience unusually high volume over a day significantly outperform stocks which experience unusually low volume. The premium is strongest in the first two weeks following the extreme volume event and among stocks with recent poor return performance. However, we show the HVRP is more likely attributable to divergent opinions than to the changes in risk-sharing that underline the pricing-effects of Merton’s (1987) investor recognition hypothesis. Specifically, the premium exists irrespective of increases or decreases in the breadth of ownership of a stock around the extreme volume event, and irrespective of shifts in investor numbers between individuals and institutions. Evidence that high volume stocks which attract more institutional (individual) investors but fewer individuals (institutions), show the highest (lowest) returns following the extreme volume event, suggests the premium in part may relate to superior stock selection or a private information advantage among institutional investors.

Keywords: Investor Recognition, High Volume Return Premium, Breadth of Ownership, Institutional Ownership, Disagreement

JEL Classification: G11, G12, G14

Suggested Citation

Gordon, Narelle and Watts, Edward J. and Wu, Qiongbing, The High Volume Return Premium and Changes in Investor Recognition (October 2013). 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=2312385 or http://dx.doi.org/10.2139/ssrn.2312385

Narelle Gordon (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Edward J. Watts

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Qiongbing Wu

Western Sydney University ( email )

Locked Bag 1797
Penrith South DC, NSW 2751
Australia
+61-2-96859805 (Phone)
+61-2-96859105 (Fax)

HOME PAGE: http://www.uws.edu.au/staff_profiles/uws_profiles/doctor_linda_wu

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