The Real Side of the High-Volume Return Premium

Management Science, Vol. 68, No. 2, Pages 1426-1449, 2022

59 Pages Posted: 1 Feb 2017 Last revised: 22 Feb 2022

See all articles by Doron Israeli

Doron Israeli

IDC Herzliya - Arison School of Business; Nazarbayev University - Graduate School of Business

Ron Kaniel

University of Rochester - Simon Business School; CEPR

Suhas A. Sridharan

Emory University - Goizueta Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2020

Abstract

Prior literature demonstrates that an increased trading activity of a fi rm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and fi nancing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high fi nancial constraints and fi rms with lower levels of investor recognition.

Keywords: Trading volume; Corporate investment; Financing cash flows; Investor recognition

JEL Classification: E22, G12, G14, M41

Suggested Citation

Israeli, Doron and Kaniel, Ron and Sridharan, Suhas A., The Real Side of the High-Volume Return Premium (October 19, 2020). Management Science, Vol. 68, No. 2, Pages 1426-1449, 2022 , Available at SSRN: https://ssrn.com/abstract=2909494 or http://dx.doi.org/10.2139/ssrn.2909494

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

Nazarbayev University - Graduate School of Business ( email )

53 Kabanbay Batyra Avenue
Nur-Sultan, 010000
Kazakhstan

Ron Kaniel

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://rkaniel.simon.rochester.edu

CEPR ( email )

London
United Kingdom

Suhas A. Sridharan

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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