Dynamic Volume-Return Relation of Individual Stocks
45 Pages Posted: 25 Oct 2000
Date Written: August 15, 2000
We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves while returns generated by speculative trades tend to continue themselves. We test this theoretical prediction by analyzing the relation between daily volume and first-order return autocorrelation for individual stocks listed on the NYSE and AMEX. We find that the cross-sectional variation in the relation between volume and return autocorrelation is related to the extent of informed trading in a manner consistent with the theoretical prediction.
JEL Classification: G10, G12, D82
Suggested Citation: Suggested Citation