Volume and Return: Fuel of Mispricing

67 Pages Posted: 16 May 2018 Last revised: 8 Mar 2019

See all articles by Yufeng Han

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance

Dashan Huang

Singapore Management University - Lee Kong Chian School of Business

Dayong Huang

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Date Written: March 1, 2019

Abstract

We find that expected return is positively related to trading volume for underpriced stocks, but negatively related to trading volume for overpriced stocks. Overall, mispricing is concentrated in high volume stocks. Our results are robust to alternative mispricng definitions, portfolio formations, and holding periods. Taking trading volume as a proxy for investor disagreement, our empirical results are consistent with the theoretical model of Atmaz and Basak (2018). Moreover, trading volume seems capturing disagreement due to investors' different interpretations on information, rather than different information sets.

Keywords: Turnover, Trading Volume, Mispricing, Disagreement, Expectation Bias

JEL Classification: G12

Suggested Citation

Han, Yufeng and Huang, Dashan and Huang, Dayong and Zhou, Guofu, Volume and Return: Fuel of Mispricing (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3171375 or http://dx.doi.org/10.2139/ssrn.3171375

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Dashan Huang

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore

HOME PAGE: http://dashanhuang.weebly.com/

Dayong Huang (Contact Author)

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics ( email )

401 Bryan Building
Greensboro, NC 27402-6179
United States

HOME PAGE: http://sites.google.com/a/uncg.edu/dayong-huang/

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

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