Expected Return, Volume, and Mispricing

81 Pages Posted: 16 May 2018 Last revised: 20 May 2021

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

Date Written: March 1, 2019

Abstract

We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation methods, and controlling for variables that are known to have amplification effects on mispricing. By attributing trading volume to investor disagreement, we show that our results are consistent with the recent theoretical model of Atmaz and Basak (2018) in that investor disagreement predicts stock returns conditional on expectation bias.

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

JEL Classification: G12

Suggested Citation

Han, Yufeng and Huang, Dashan and Huang, Dayong and Zhou, Guofu, Expected Return, Volume, and 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/

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