The High Volume Return Premium and Changes in Investor Recognition
Posted: 20 Aug 2013 Last revised: 14 Feb 2014
Date Written: October 2013
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: Suggested Citation