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Trading Volume and Time Varying Betas
[Alpha or beta in the eye of the beholder: what drives hedge fund flows?]

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  • Christopher Hrdlicka

Abstract

I show that increased turnover accompanies changes in stocks’ risk exposures. A one standard deviation decrease in a stock’s market beta increases turnover as much as 25%. The sensitivity of turnover to beta changes has grown over time. Market beta changes explain as much as 5% of the monthly cross-sectional variation in turnover. VAR decompositions of returns show turnover is more strongly associated with discount rate news than cash flow news. This mechanism provides a new channel for turnover combined with realized returns to predict long horizon returns and cash flow changes. Further, this mechanism can amplify many prior explored motives for trade.

Suggested Citation

  • Christopher Hrdlicka, 2022. "Trading Volume and Time Varying Betas [Alpha or beta in the eye of the beholder: what drives hedge fund flows?]," Review of Finance, European Finance Association, vol. 26(1), pages 79-116.
    • Handle: RePEc:oup:revfin:v:26:y:2022:i:1:p:79-116.
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    References listed on IDEAS

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    More about this item

    Keywords

    Return predictability; Dividend predictability; Beta estimation; Turnover;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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