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Price Momentum and Trading Volume

Author

Listed:
  • Charles M.C. Lee

    (Johnson Graduate School of Management, Cornell University)

  • Bhaskaran Swaminathan

    (Johnson Graduate School of Management, Cornell University)

Abstract

This study shows that past trading volume provides an important link between 'momentum' and 'value' strategies. Specifically, we find that firms with high (low) past turnover ratios exhibit many glamour (value) characteristics, earn lower (higher) future returns, and have consistently more negative (positive) earnings surprises over the next eight quarters. Past trading volume also predicts both the magnitude and persistence of price momentum. Specifically, price momentum effects reverse over the next five years, and high (low) volume winners (losers) experience faster reversals. Collectively, our findings show that past volume helps to reconcile intermediate-horizon 'underreaction' and long-horizon 'overreaction' effects. Copyright The American Finance Association 2000.

Suggested Citation

  • Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:5:p:2017-2069
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    References listed on IDEAS

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    6. Gallant, A. Ronald & Tauchen, George, 1996. "Which Moments to Match?," Econometric Theory, Cambridge University Press, vol. 12(04), pages 657-681, October.
    7. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-787, October.
    8. David K. Backus & Stanley E. Zin, 1994. "Reverse Engineering the Yield Curve," NBER Working Papers 4676, National Bureau of Economic Research, Inc.
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