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On the Stability of the Cross-Section of Expected Stock Returns in the Cross-Section: Understanding the Curious Role of Share Turnover

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  • Avanidhar Subrahmanyam

Abstract

"In this paper, we shed further light on cross-sectional predictors of stock return performance. Specifically, we explore whether the cross-section of expected stock returns is robust within stock groups sorted by past monthly return. We find that the book/market and momentum effects are remarkably robust to sorting on past returns. However, share turnover is negatively related to future returns for stocks with abnormally low stock price performance in the recent past, but postively related to returns for well-performing stocks. This casts doubt on the use of turnover as a liquidity proxy, but is consistent with turnover being a proxy for momentum trading which pushes prices in the direction of past price movements. Our results are robust to both NYSE/AMEX and Nasdaq stocks, and also robust to stratifying the sample by time period". Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • Avanidhar Subrahmanyam, 2005. "On the Stability of the Cross-Section of Expected Stock Returns in the Cross-Section: Understanding the Curious Role of Share Turnover," European Financial Management, European Financial Management Association, vol. 11(5), pages 661-678.
  • Handle: RePEc:bla:eufman:v:11:y:2005:i:5:p:661-678
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1354-7798.2005.00303.x
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    Cited by:

    1. Lee, Jen-Sin & Huang, Gow-Liang & Kuo, Chin-Tai & Lee, Liang-Chien, 2012. "The momentum effect on Chinese real estate stocks: Evidence from firm performance levels," Economic Modelling, Elsevier, vol. 29(6), pages 2392-2406.
    2. Krishnan, R. & Mishra, Vinod, 2013. "Intraday liquidity patterns in Indian stock market," Journal of Asian Economics, Elsevier, vol. 28(C), pages 99-114.
    3. Foran, Jason & Hutchinson, Mark C. & O'Sullivan, Niall, 2015. "Liquidity commonality and pricing in UK equities," Research in International Business and Finance, Elsevier, vol. 34(C), pages 281-293.

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