Psychological Factors, Stock Price Paths, and Trading Volume
40 Pages Posted: 22 Mar 2005
Date Written: March 15, 2005
We examine the relation between the trading volume of a stock and the past stock price trading range. Volume is strikingly higher, in both economical and statistical terms, when the current price is above (below) the previous fifty-two week high (low). Results are robust to a wide range of controls, including returns and news events. An event study shows that volume spikes in the week when price leaves the prior trading range, then gradually returns to normal levels. The results suggest that psychological factors are pervasive and strong enough to be an important determinant of equities market volume.
Keywords: prospect theory, value function, reference point, behavioral finance
JEL Classification: C93, D70, D81, G10
Suggested Citation: Suggested Citation