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The Real Side of the High-Volume Return Premium

Author

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  • Doron Israeli

    (Arison School of Business, Interdisciplinary Center (IDC) Herzliya, Herzliya 4610101, Israel; Graduate School of Business, Nazarbayev University, Nur-Sultan City 010000, Republic of Kazakhstan)

  • Ron Kaniel

    (Simon School of Business, University of Rochester, Rochester, New York 14627; Fanhai International School of Finance, Fudan, Shanghai 200001, China; Center for Economic and Policy Research, Washington, District of Columbia 20009; Arison School of Business, Interdisciplinary Center (IDC) Herzliya, Herzliya 4610101, Israel)

  • Suhas A. Sridharan

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

Abstract

Prior literature demonstrates that increased trading activity of a firm’s stock is associated with abnormal future stock returns (the high-volume return premium ) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures or by subsequent earnings information and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.

Suggested Citation

  • Doron Israeli & Ron Kaniel & Suhas A. Sridharan, 2022. "The Real Side of the High-Volume Return Premium," Management Science, INFORMS, vol. 68(2), pages 1426-1449, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1426-1449
    DOI: 10.1287/mnsc.2020.3886
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    1. Han, Yufeng & Huang, Dashan & Huang, Dayong & Zhou, Guofu, 2022. "Expected return, volume, and mispricing," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1295-1315.

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    More about this item

    Keywords

    trading volume; corporate investment; financing cash flows; investor recognition;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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