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Does volume help in predicting stock returns? An analysis of the Australian market

  • Bissoondoyal-Bheenick, Emawtee
  • Brooks, Robert D.

This paper presents an analysis of the relationship between trading volume and stock returns in the Australian market. We test this hypothesis by using data from a sample of firms listed on the Australian stock market for a period of 5 years from January 2001 to December 2005. We explore this relationship by focusing on the level of trading volume and thin trading in the market. Our results suggest that trading volume does seem to have some predictive power for high volume firms and in certain industries of the Australian market. However, for smaller firms, trading volume does not seem to have the same predictive power to explain stock returns in Australia.

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Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 24 (2010)
Issue (Month): 2 (June)
Pages: 146-157

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Handle: RePEc:eee:riibaf:v:24:y:2010:i:2:p:146-157
Contact details of provider: Web page: http://www.elsevier.com/locate/ribaf

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  1. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
  2. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
  3. Robert Brooks & Robert Faff & Tim Fry & Emma Newton, 2004. "Censoring and its impact on multivariate testing of the Capital Asset Pricing Model," Applied Financial Economics, Taylor & Francis Journals, vol. 14(6), pages 413-420.
  4. Hutson, Elaine & Kearney, Colm & Lynch, Margaret, 2008. "Volume and skewness in international equity markets," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1255-1268, July.
  5. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1992. "Trading Volume and Serial Correlation in Stock Returns," NBER Working Papers 4193, National Bureau of Economic Research, Inc.
  6. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
  7. Conrad, Jennifer S & Hameed, Allaudeen & Niden, Cathy, 1994. " Volume and Autocovariances in Short-Horizon Individual Security Returns," Journal of Finance, American Finance Association, vol. 49(4), pages 1305-29, September.
  8. Joseph Chen & Harrison Hong & Jeremy C. Stein, 2000. "Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices," NBER Working Papers 7687, National Bureau of Economic Research, Inc.
  9. Hueng, C. James & McDonald, James B., 2005. "Forecasting asymmetries in aggregate stock market returns: Evidence from conditional skewness," Journal of Empirical Finance, Elsevier, vol. 12(5), pages 666-685, December.
  10. McMillan, David G., 2007. "Non-linear forecasting of stock returns: Does volume help?," International Journal of Forecasting, Elsevier, vol. 23(1), pages 115-126.
  11. Wang, Changyun & Chin, Shengtyng, 2004. "Profitability of return and volume-based investment strategies in China's stock market," Pacific-Basin Finance Journal, Elsevier, vol. 12(5), pages 541-564, November.
  12. Chordia, Tarun & Subrahmanyam, Avanidhar & Anshuman, V. Ravi, 2001. "Trading activity and expected stock returns," Journal of Financial Economics, Elsevier, vol. 59(1), pages 3-32, January.
  13. Brooks, Robert D. & Faff, Robert W. & Fry, Tim R. L., 2001. "GARCH modelling of individual stock data: the impact of censoring, firm size and trading volume," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(2), pages 215-222, June.
  14. Reinganum, Marc R, 1982. " A Direct Test of Roll's Conjecture on the Firm Size Effect," Journal of Finance, American Finance Association, vol. 37(1), pages 27-35, March.
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