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Title: Dynamic Volume-Return Relation of Individual Stocks
Authors: Llorente, Guillermo
Michaely, Roni
Saar, Gideon
Wang, Jiang
Issue Date: 15-Aug-2000
Series/Report no.: FIN-00-032
Abstract: We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves while returns generated by speculative trades tend to continue themselves. We test this theoretical prediction by analyzing the relation between daily volume and first-order return autocorrelation for individual stocks listed on the NYSE and AMEX. We find that the cross-sectional variation in the relation between volume and return autocorrelation is related to the extent of informed trading in a manner consistent with the theoretical prediction.
Appears in Collections:Finance Working Papers

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