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Dynamic trading volume and stock return relation: Does it hold out of sample?

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  • Wang, Zijun
  • Qian, Yan
  • Wang, Shiwen

Abstract

This paper studies the dynamic relation between trading volume and stock returns from the perspective of out-of-sample stock return predictability. Evidence from the U.S. suggests that higher returns do follow more intensive trading, especially in the pre-2000 period. However, the ex-ante predictability delivers a small economic gain equivalent to an annual return of 0.73% for a risk-averse investor. This weak out-of-sample predictive power of volume is absent in most of the other major markets. Overall, investors are not likely to gain much financially by “riding the volume curve,” at least at the levels of net profits suggested by our findings.

Suggested Citation

  • Wang, Zijun & Qian, Yan & Wang, Shiwen, 2018. "Dynamic trading volume and stock return relation: Does it hold out of sample?," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 195-210.
  • Handle: RePEc:eee:finana:v:58:y:2018:i:c:p:195-210
    DOI: 10.1016/j.irfa.2017.10.003
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    More about this item

    Keywords

    Volume-return relation; Out-of-sample regression; High volume return premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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