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Low-volume return premium in the Korean stock market

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  • Chae, Joon
  • Kang, Mhin

Abstract

We propose a new mechanism with which we explain an exceptional phenomenon in the Korean stock market, wherein the post-event return of an abnormally low-volume stock is larger than that of an abnormally high-volume stock, in contrast to what happens in other major stock markets. This mechanism is a combination of two market characteristics: one is the mean-reversion of trading volume; the other is the dominance of stocks with a positive correlation between return and change in trading volume. Using evidence from the Korean stock market, we show that the return generated by this mechanism has a highly concentrated distribution with a negative average and that the value has a scale higher than that of positive returns generated by other factors. We conclude that our suggested mechanism can explain the low-volume return premium in the Korean stock market. This finding presents a new way to explain how trading volume change affects future returns.

Suggested Citation

  • Chae, Joon & Kang, Mhin, 2019. "Low-volume return premium in the Korean stock market," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:pacfin:v:58:y:2019:i:c:s0927538x1930160x
    DOI: 10.1016/j.pacfin.2019.101204
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    2. Ma, Yao & Yang, Baochen & Su, Yunpeng, 2021. "Stock return predictability: Evidence from moving averages of trading volume," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).

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