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Volume And R2: A First Look

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  • Bradford Cornell

Abstract

Roll (1988) reports that when days on which public announcements occur are excluded from a regression of stock returns on market returns, the R2s are largely unaffected. To explain his findings, Roll suggests that much of the firm‐specific movements in common stocks may be a result of private information or occasional trading frenzy. As a test of Roll's conjecture, volume is used in this study as a proxy to capture the impact of firm‐specific information and irrational trading. If Roll's conjecture is correct, the R2 should rise when high‐volume days are excluded from a regression of stock returns on market returns. The results presented here are consistent with that prediction, but they are not strong.

Suggested Citation

  • Bradford Cornell, 1990. "Volume And R2: A First Look," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(1), pages 1-6, March.
    • Handle: RePEc:bla:jfnres:v:13:y:1990:i:1:p:1-6
    DOI: 10.1111/j.1475-6803.1990.tb00530.x
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    Cited by:

    1. Paulo Alves & Ken Peasnell & Paul Taylor, 2010. "The Use of the "R"-super-2 as a Measure of Firm-Specific Information: A Cross-Country Critique," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 1-26.
    2. Ashok J. Robin, 1993. "On Improving The Performance Of The Market Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 367-376, December.

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