Volume and Price Patterns Around a Stock's 52-Week Highs and Lows: Theory and Evidence

32 Pages Posted: 8 Jan 2003 Last revised: 19 Sep 2012

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Mark H. Lang

University of North Carolina at Chapel Hill

Michelle Yetman

University of California, Davis - Graduate School of Management

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Abstract

We provide large sample evidence that past price extremes influence investors' trading decisions. Volume is strikingly higher, in both economic and statistical terms, when the stock price crosses either the upper or lower limit of its past trading range. This increase in volume is more pronounced the longer the time since the stock price last achieved the price extreme, the smaller the firm, the higher the individual investor interest in the stock, and the greater the ambiguity regarding valuation. These results are robust across model specifications and controls for past returns and news arrival. Volume spikes when price crosses either the upper or lower limit of the past trading range, then gradually subsides. After either event, returns are reliably positive and, among small investors, trades classified as buyer-initiated are elevated. Overall, results are more consistent with bounded rationality - specifically, the attention hypothesis posited by Barber and Odean (2008) - than with other candidate explanations.

Keywords: decision analysis, prospect theory, value function, reference point, behavioral finance

JEL Classification: C93, D70, D81, G12

Suggested Citation

Huddart, Steven J. and Lang, Mark H. and Yetman, Michelle, Volume and Price Patterns Around a Stock's 52-Week Highs and Lows: Theory and Evidence. Available at SSRN: https://ssrn.com/abstract=353749 or http://dx.doi.org/10.2139/ssrn.353749

Steven J. Huddart (Contact Author)

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-865-3271 (Phone)
814-863-8393 (Fax)

HOME PAGE: http://www.personal.psu.edu/sjh11

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Michelle Yetman

University of California, Davis - Graduate School of Management ( email )

128 AOB IV
One Shields Avenue
Davis, CA 95616
United States
530-754-7808 (Phone)
530-752-2924 (Fax)

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