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Trading Volume and Serial Correlation in Stock Returns

45 Pages Posted: 30 Jan 2003  

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Sanford J. Grossman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Jiang Wang

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

Date Written: October 1992

Abstract

This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "non-informational" traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.

Suggested Citation

Campbell, John Y. and Grossman, Sanford J. and Wang, Jiang, Trading Volume and Serial Correlation in Stock Returns (October 1992). NBER Working Paper No. w4193. Available at SSRN: https://ssrn.com/abstract=297335

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Sanford J. Grossman

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania - Finance Department ( email )

The Wharton School
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Philadelphia, PA 19104
United States

Jiang Wang

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

E62-614
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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

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