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Trading Volume and Serial Correlation in Stock Returns

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Author Info
John Y. Campbell
Sanford J. Grossman
Jiang Wang

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Abstract

This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "non-informational" traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4193.

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Date of creation: Oct 1992
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Handle: RePEc:nbr:nberwo:4193

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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.:
  1. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, vol. 102(411), pages 415-25, March. [Downloadable!] (restricted)
  2. Grossman, S.J. & Miller, M.H., 1988. "Liquidity And Market Structure," Papers 88, Princeton, Department of Economics - Financial Research Center.
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  3. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Campbell, J.Y. & Kyle, A.S., 1988. "Smart Money, Noise Trading And Stock Price Behavior," Papers 95, Princeton, Department of Economics - Financial Research Center.
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  6. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March. [Downloadable!] (restricted)
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This page was last updated on 2009-11-21.

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