Disagreement, Aggregate Trading Volume, and Excess Market Returns

47 Pages Posted: 21 Nov 2017

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago

Egemen Genc

University of Illinois at Chicago

Chao Jiang

University of South Carolina - Department of Finance

Paul D. Koch

Iowa State University - Finance Department; Iowa State University - Finance Department

Date Written: April 30, 2017

Abstract

We show that unusually high aggregate stock trading volume predicts higher future excess market returns. On average, the market gains 30 to 50 basis points in the week following a period of unusually high market volume. The effect is even more pronounced when high unusual volume is accompanied by higher aggregate stock return volatility. In out-of-sample tests of predictability, unusually high aggregate volume outperforms a host of other variables that have also been shown to predict the equity risk premium. This aggregate volume - return relation holds for a majority of G7 countries, and it is robust across alternative measures of aggregate trading volume, as well as across different subperiods. Our evidence is consistent with the predictions of an extensive theoretical literature which implies that disagreement among market participants should be associated with a positive risk premium.

Keywords: Disagreement, abnormal trading volume, asset prices, equity risk premium, volatility, return predictability

JEL Classification: G12, G15, G17

Suggested Citation

Akbas, Ferhat and Genc, Egemen and Jiang, Chao and Koch, Paul D., Disagreement, Aggregate Trading Volume, and Excess Market Returns (April 30, 2017). Available at SSRN: https://ssrn.com/abstract=3074131 or http://dx.doi.org/10.2139/ssrn.3074131

Ferhat Akbas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60076
United States

Egemen Genc

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Chao Jiang (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Paul D. Koch

Iowa State University - Finance Department

Ivy College of Business
Ames, IA 50011
United States
5152942491 (Phone)

HOME PAGE: http://https://www.business.iastate.edu/directory/pkoch/

Iowa State University - Finance Department

Ames, IA 50011-2063
United States
5152942491 (Phone)

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