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Why does higher variability of trading activity predict lower expected returns?

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  • Barinov, Alexander

Abstract

The paper shows that controlling for the aggregate volatility risk factor eliminates the puzzling negative relation between variability of trading activity and future abnormal returns. I find that variability of other measures of liquidity and liquidity risk is largely unrelated to expected returns. Lastly, I show that the low returns to firms with high variability of trading activity are not explained by liquidity risk or mispricing theories.

Suggested Citation

  • Barinov, Alexander, 2015. "Why does higher variability of trading activity predict lower expected returns?," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 457-470.
    • Handle: RePEc:eee:jbfina:v:58:y:2015:i:c:p:457-470
    DOI: 10.1016/j.jbankfin.2015.05.014
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    Cited by:

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    2. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "Does proprietary day trading provide liquidity at a cost to investors?," International Review of Financial Analysis, Elsevier, vol. 68(C).
    3. Luo, Dan & Mao, Yipeng, 2021. "Fundamental volatility and informative trading volume in a rational expectations equilibrium," Economic Modelling, Elsevier, vol. 105(C).

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    More about this item

    Keywords

    Liquidity; Uncertainty; Liquidity risk; Turnover; Trading volume; Aggregate volatility risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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