Volume and Return: Fuel of Mispricing
67 Pages Posted: 16 May 2018 Last revised: 8 Mar 2019
Date Written: March 1, 2019
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: Suggested Citation