Dynamic Volume-Return Relation of Individual Stocks

55 Pages Posted: 3 Jun 2001 Last revised: 22 Oct 2010

See all articles by Guillermo Llorente

Guillermo Llorente

Universidad Autonoma de Madrid

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2001

Abstract

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.

Suggested Citation

Llorente-Alvarez, Jesus-Guillermo and Michaely, Roni and Saar, Gideon and Wang, Jiang, Dynamic Volume-Return Relation of Individual Stocks (May 2001). NBER Working Paper No. w8312, Available at SSRN: https://ssrn.com/abstract=272115

Jesus-Guillermo Llorente-Alvarez (Contact Author)

Universidad Autonoma de Madrid ( email )

Facultad de C. Economicas
Madrid, Madrid 28049
Spain
34-91-497-4812 (Phone)
34-91-497-7057 (Fax)

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
100 Main Street
Cambridge, MA 02142
United States
617-253-2632 (Phone)
617-258-6855 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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