Which Past Returns Affect Trading Volume?

Journal of Financial Markets, Vol. 12, pp. 1-31, 2009

38 Pages Posted: 21 Mar 2005 Last revised: 18 Apr 2011

See all articles by Markus Glaser

Markus Glaser

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: 2009

Abstract

Anecdotal evidence suggests and recent theoretical models argue that past stock returns affect subsequent stock trading volume. We study 3,000 individual investors over a 51 month period to test this apparent link between past returns and volume using several different panel regression models (linear panel regressions, negative binomial panel regressions, Tobit panel regressions). We find that both past market returns as well as past portfolio returns affect trading activity of individual investors (as measured by stock portfolio turnover, the number of stock transactions, and the propensity to trade stocks in a given month). After high portfolio returns, investors buy high risk stocks and reduce the number of stocks in their portfolio. High past market returns do not lead to higher risk taking or underdiversification. We argue that the only explanations for our findings are overconfidence theories based on biased self-attribution and differences of opinion explanations for high levels of trading activity.

Keywords: Individual investors, investor behavior, trading volume, stock returns and trading volume, overconfidence, differences of opinion, discount broker, online broker, online banks, panel data, count data

JEL Classification: D8, G1

Suggested Citation

Glaser, Markus and Weber, Martin, Which Past Returns Affect Trading Volume? (2009). Journal of Financial Markets, Vol. 12, pp. 1-31, 2009. Available at SSRN: https://ssrn.com/abstract=686802

Markus Glaser (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Schackstraße 4
Munich, 80539
Germany

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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