Trading Volume, Return Variability and Short-Term Momentum
29 Pages Posted: 16 Nov 2013 Last revised: 25 Feb 2015
Date Written: February 20, 2015
We examine the hypothesis that stock prices underreact to corporate news and that trading volume and return variability are proxies for latent news flow. Consistent with this notion, we find that that price continuation and potential momentum profits are larger after elevated levels of volume and variability. This conditional momentum effect is not driven by micro-cap stocks and robust to corrections for systematic risk factors and stock characteristics such as liquidity and credit quality.
Keywords: Volume; Variability; Latent News Flow; Momentum; Underreaction to News; Mixture-of-Distributions Hypothesis.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation