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Arbitrage risk and the turnover anomaly

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  • Chou, Pin-Huang
  • Huang, Tsung-Yu
  • Yang, Hung-Jeh
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    Abstract

    A strong turnover premium exists such that stocks with lower turnover have higher future returns in the 5years following their formation than those with higher turnover. This turnover premium cannot be explained by existing asset-pricing models, a risk-based liquidity factor, or anomalies such as size, book-to-market ratio, or momentum. Further analysis indicates that the turnover premium is greater for stocks with higher idiosyncratic volatility, higher transaction costs, lower institutional ownership, and lower investor sophistication, which implies it is consistent with the mispricing explanation based on arbitrage risk.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 11 ()
    Pages: 4172-4182

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4172-4182

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Turnover; Asset-pricing anomaly; Arbitrage risk; Investor sophistication; Differences of opinion;

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