Investment-Horizon Spillovers: Evidence From Decomposing Trading-Volume Variance
49 Pages Posted: 4 Jan 2015 Last revised: 2 Jun 2016
Date Written: May 13, 2016
This paper introduces a new tool — the wavelet-variance estimator — that measures the fraction of trading activity at each investment horizon. We find substantial cross-sectional variation in horizons, even for stocks with the same volume, size, and liquidity. Moreover, the fraction of trading at the one-minute horizon is priced in monthly returns. The quintile of stocks with the highest fraction of trading at the one-minute horizon has abnormal returns that are 0.49% per month higher than the lowest quintile’s. Abnormal returns persist after controlling for liquidity, asymmetric information, and risk factors. Trading activity at one horizon can spillover and affect returns at another.
Keywords: Investment Horizon, Trading Volume, Wavelet Variance
JEL Classification: C55, C58, G12, G14
Suggested Citation: Suggested Citation