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Trading on trends: How the ordering of historical volume predicts Chinese stock returns?

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  • Li, Yihan

Abstract

In examining return prediction strategies in China’s stock market, we find that the chronological return ordering is ineffective within a one-month window. To overcome this limitation, we introduce a more robust measure, named chronological turnover ordering (CTO3), calculated using turnover in the past three months. As anticipated, CTO3 demonstrates statistically significant predictability for returns, indicating a tendency among investors to overvalue stocks with high recent and low distant turnover. Bivariate portfolio analysis reveals that CTO3 performs more effectively during high-sentiment periods and on stocks with high investor attention. This research contributes significantly to understanding investor behavior and market dynamics in China.

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  • Li, Yihan, 2024. "Trading on trends: How the ordering of historical volume predicts Chinese stock returns?," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004502
    DOI: 10.1016/j.irfa.2024.103518
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    More about this item

    Keywords

    Ordering effect; Trading volume; Extrapolative beliefs; Return predictability;
    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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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