The High-Volume Return Premium and Changes in Investor Recognition

36 Pages Posted: 20 Jul 2018

See all articles by Narelle Gordon

Narelle Gordon

Macquarie University; Macquarie University, Macquarie Business School

Qiongbing Wu

Western Sydney University

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2018

Abstract

The phenomenon of high-volume return premium is generally attributed to the visibility hypothesis proposed by Gervais et al (2001) based on the theoretical framework of Miller (1977) and Merton’s (1987)’s investor recognition hypothesis. However, no existing empirical study has directly tested the visibility hypothesis due to the lack of high-frequency shareholding data. In this paper, we utilize the unique daily shareholding data for stocks listed on Australian Stock Exchange to directly test this hypothesis by examining the relationship between high-volume return premium and changes in investor recognition. We find that high-volume shocks do attract more investor attention and increase the investor base on the date of, and following, the shocks. This provides direct empirical evidence in support of visibility explanation for high-volume return premium. We also find that institutional and individual investors attend to different kinds of stocks; stocks attracting more institutional (individual) investors outperform (underperform) subsequent the volume shocks and exhibit higher (lower) high-volume return premium. Our findings shed new light on the visibility hypothesis by showing that recognition/attention from institutional or individual investor is also crucial in determining the extent of high-volume return premium and may help to reconcile the existing mixed empirical evidence across international markets.

Keywords: High-Volume Return Premium, Investor Recognition, Breadth of Ownership, Investor Base, Institutional Ownership

JEL Classification: G11, G12, G14

Suggested Citation

Gordon, Narelle and Wu, Qiongbing, The High-Volume Return Premium and Changes in Investor Recognition (June 29, 2018). Pacific-Basin Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3204954

Narelle Gordon (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Qiongbing Wu

Western Sydney University ( email )

Locked Bag 1797
Penrith South DC, NSW 2751
Australia
+61-2-96859805 (Phone)
+61-2-96859105 (Fax)

HOME PAGE: http://www.uws.edu.au/staff_profiles/uws_profiles/doctor_linda_wu

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