Abnormal trading volume and autoregressive behavior in weekly stock returns in the Saudi stock market
AbstractThis paper examines the relationship between the abnormal change in trading volume of both individual stocks and portfolios and short-term price autoregressive behavior in the Saudi stock market (SSM). Our objective is to investigate the informational role that trading volume plays in predicting the direction of short-term returns. We evaluate whether the abnormal change in lagged, contemporaneous, and lead turnovers affects serial correlation in returns. Specifically, we examine if and when the change in volume produces momentum (positive correlation) or reversal (negative autocorrelation) in consecutive weekly stock returns. We find a reversal in weekly stock returns when conditioned on the change in lagged volume in the SSM. Our results are consistent for the whole sample, the two sub-sample periods, and the large- and small-firm portfolios. The results are consistent with Campbell, Grossman, and Wang [Campbell, J. Y., S. J. Grossman, and J. Wang, 1993, Trading volume and serial correlation in stock returns, Quarterly Journal of Economics, 108, 905-939], who present a model in which risk-averse market makers accommodate the selling pressure of liquidity or non-informational traders. We also find that reversal is more pronounced with the loser portfolio as specified by filter-based methodology. The overall result of this paper is also consistent with the empirical findings of Conrad, Hameed, and Niden [Conrad, J., A. Hameed, and C. Niden, 1994, Volume and autocovariances in short-horizon individual security returns, Journal of Finance 49, 1305-1329.] and Gebka [Gebka, B., 2005, Dynamic volume-return relationship: evidence from an emerging market, Applied Financial Economics, 15, 1019-1029] in which they report price reversal for stock with high trading volume.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Emerging Markets Review.
Volume (Year): 10 (2009)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620356
Saudi stock market (SSM) Trading volume Liquidity traders MRTO;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lehmann, Bruce N, 1990. "Fads, Martingales, and Market Efficiency," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 1-28, February.
- John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1992.
"Trading Volume and Serial Correlation in Stock Returns,"
NBER Working Papers
4193, National Bureau of Economic Research, Inc.
- Campbell, John Y & Grossman, Sanford J & Wang, Jiang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 905-39, November.
- Wang, Jiang & Grossman, Sanford & Campbell, John, 1993. "Trading Volume and Serial Correlation in Stock Returns," Scholarly Articles 3128710, Harvard University Department of Economics.
- Andrew W. Lo & A. Craig MacKinlay, 1987.
"Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test,"
NBER Working Papers
2168, National Bureau of Economic Research, Inc.
- Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
- Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2001.
"Dynamic Volume-Return Relation of Individual Stocks,"
NBER Working Papers
8312, National Bureau of Economic Research, Inc.
- Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2002. "Dynamic Volume-Return Relation of Individual Stocks," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1005-1047.
- Hammoudeh, Shawkat & Li, Huimin, 2008. "Sudden changes in volatility in emerging markets: The case of Gulf Arab stock markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 47-63.
- Cooper, Michael, 1999. "Filter Rules Based on Price and Volume in Individual Security Overreaction," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 901-35.
- Bartosz Gebka, 2005. "Dynamic volume-return relationship: evidence from an emerging capital market," Applied Financial Economics, Taylor & Francis Journals, vol. 15(14), pages 1019-1029.
- Bruce N. Lehmann, 1988. "Fads, Martingales, and Market Efficiency," NBER Working Papers 2533, National Bureau of Economic Research, Inc.
- Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March.
- Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-68, February.
- Conrad, Jennifer, 1989. " The Price Effect of Option Introduction," Journal of Finance, American Finance Association, vol. 44(2), pages 487-98, June.
- Brooks, Robert, 2007. "Power arch modelling of the volatility of emerging equity markets," Emerging Markets Review, Elsevier, vol. 8(2), pages 124-133, May.
- Conrad, Jennifer & Kaul, Gautam & Nimalendran, M., 1991. "Components of short-horizon individual security returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 365-384, October.
- Jahan-Parvar, Mohammad R. & Waters, George A., 2010.
"Equity price bubbles in the Middle Eastern and North African Financial markets,"
Emerging Markets Review,
Elsevier, vol. 11(1), pages 39-48, March.
- Jahan-Parvar, Mohammad & Waters, George, 2009. "Equity Price Bubbles in the Middle Eastern and North African Financial Markets," MPRA Paper 17859, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.