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Salience theory in price and trading volume: Evidence from China

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  • Sun, Kaisi
  • Wang, Hui
  • Zhu, Yifeng

Abstract

This paper not only confirms the negative predictive power of a stock’s salient returns, but also reveals the incremental predictability of its salient trading volumes on expected returns in the Chinese stock market. Aside from the fact that the salient volume effect is stronger when investor disagreement is higher, both negative salience effects are insensitive to stock capital states (gain or loss), lottery demand, short-term reversal, investor sentiment, and attention-grabbing news or events. Salience-induced price pressure (order imbalance) analysis suggests that both institutional and retail investors can be salient thinkers regarding the stock return and trading volume.

Suggested Citation

  • Sun, Kaisi & Wang, Hui & Zhu, Yifeng, 2023. "Salience theory in price and trading volume: Evidence from China," Journal of Empirical Finance, Elsevier, vol. 70(C), pages 38-61.
    • Handle: RePEc:eee:empfin:v:70:y:2023:i:c:p:38-61
    DOI: 10.1016/j.jempfin.2022.11.005
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    More about this item

    Keywords

    Salience theory; Trading volume; Equity returns; Cross-section analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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