High Aggregate Volume Return Premium
56 Pages Posted: 21 Nov 2017 Last revised: 6 Feb 2020
Date Written: February 3, 2020
Unusually high aggregate stock trading volume in one week predicts higher excess market returns in the following week, especially when accompanied by high market volatility. This predictive relation is robust across alternative measures of aggregate trading volume. In out-of-sample forecasting tests, unusually high aggregate volume outperforms a host of other variables that have been shown to forecast the equity premium. Our evidence is most consistent with a risk premium associated with shocks to market-wide disagreement among market participants. Return autocorrelations, visibility effects, and market sentiment do not explain our findings.
Keywords: Disagreement, abnormal trading volume, asset prices, equity risk premium, volatility, return predictability
JEL Classification: G12, G15, G17
Suggested Citation: Suggested Citation