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Price Momentum and Trading Volume

Charles M.C. Lee

Stanford University - Graduate School of Business

Bhaskaran Swaminathan

LSV Asset Management

June 23, 1998

Past trading volume predicts both the magnitude and persistence of future price momentum. In the intermediate-term, a strategy of buying past high-volume winners and selling past high-volume losers outperforms a similar strategy based on price momentum alone by 2% to 7% per year. In the long-term, a strategy of buying low-volume winners and selling high-volume losers exhibits return continuation up to three years, while a strategy of buying high-volume winners and selling low-volume losers exhibits return reversals in years two and three. These findings are consistent with behavioral models in which stock prices initially underreact, but ultimately overreact, to fundamental news. In this context, past trading volume provides information about the level of investor interest, and indirectly, about the imminence of price reversals.

Number of Pages in PDF File: 42

JEL Classification: G12, G14

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Date posted: July 6, 1998  

Suggested Citation

Lee, Charles M.C. and Swaminathan, Bhaskaran, Price Momentum and Trading Volume (June 23, 1998). Available at SSRN: https://ssrn.com/abstract=92589 or http://dx.doi.org/10.2139/ssrn.92589

Contact Information

Charles M.C. Lee
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Bhaskaran Swaminathan (Contact Author)
LSV Asset Management ( email )
155 North Wacker Drive
Chicago, IL 60606
United States

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