Working Paper

Trading volume and return reversals

Abstract: This paper tests whether the magnitude of the serial correlation of monthly stock returns varies with trading volume. In both the 1915-1945 and 1946-1989 periods, it finds a statistically significant relationship between NYSE volume shocks and return reversals. The point estimates suggest that if month \"t\" has a one-standard-deviations shock to trading volume, an additional 40 to 50 percent of month t's stock return is eventually reversed. Additional results indicate that the volume shocks are not just a proxy for previously known predictors of aggregate stock returns such as the dividend/price ratio, the term structure, and the default premium.

Keywords: Stock market;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 1992

Number: 192