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Stock Market Trading and Market Conditions

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  • John M. Griffin
  • Federico Nardari
  • Rene M. Stulz

Abstract

This paper investigates the dynamic relation between market-wide trading activity and returns in 46 markets. Many stock markets exhibit a strong positive relation between turnover and past returns. These findings stand up in the face of various controls for volatility, alternative definitions for turnover, and differing sample periods, and are present at both the weekly and daily frequency. However, the magnitude of this relation varies widely across markets. Several competing explanations are examined by linking cross-country variables to the magnitude of the relation. The relation between returns and turnover is stronger in countries with restrictions on short sales and where stocks are highly cross-correlated; it is also stronger among individual investors than among foreign or institutional investors. In developed economies, turnover follows past returns more strongly in the 1980s than in the 1990s. The evidence is consistent with models of costly stock market participation in which investors infer that their participation is more advantageous following higher stock returns.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10719.

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Date of creation: Sep 2004
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Handle: RePEc:nbr:nberwo:10719

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Citations

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Cited by:
  1. Charles van Marrewijk & Gus Garita, 2008. "Countries of a Feather flock together," Tinbergen Institute Discussion Papers 08-067/2, Tinbergen Institute, revised 19 Sep 2008.
  2. Mihir A. Desai & Dhammika Dharmapala & Winnie Fung, 2005. "Taxation and the Evolution of Aggregate Corporate Ownership Concentration," NBER Working Papers 11469, National Bureau of Economic Research, Inc.
  3. Mendoza, Enrique G. & Smith, Katherine A., 2006. "Quantitative implications of a debt-deflation theory of Sudden Stops and asset prices," Journal of International Economics, Elsevier, Elsevier, vol. 70(1), pages 82-114, September.
  4. Cheng Hsiao & Zijun Wang & Jian Yang & Qi Li, 2006. "The emerging market crisis and stock market linkages: further evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(6), pages 727-744.
  5. Younes Boujelbène & Majdi Ksantini, 2009. "La transmission entre les marchés boursiers :Une analyse en composante principale," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 52(2), pages 161-194.
  6. Niklas Karlsson & George Loewenstein & Duane Seppi, 2009. "The ostrich effect: Selective attention to information," Journal of Risk and Uncertainty, Springer, Springer, vol. 38(2), pages 95-115, April.
  7. Dey, Malay K., 2005. "Turnover and return in global stock markets," Emerging Markets Review, Elsevier, Elsevier, vol. 6(1), pages 45-67, April.

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