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Stock Price Behavior around Extreme Trading Volumes

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  • Megan Yuan Sun

Abstract

The study investigates how the coexistence of extreme returns and volumes predicts future stock returns and how the high-volume return premium is affected by the coexistent extreme returns. It also examines the patterns of returns, volatility, and skewness around extreme trading volumes. We find that stocks exhibit different return and volatility patterns prior to and after extreme volumes. We also find that the high-volume return premium only exists among small size stocks which simultaneously experience extremely low prior returns. The high-volume return premium disappears for larger size stocks experiencing extremely low prior returns.  Regardless of the firm size, the high-volume return premium only lasts for a very short time period for stocks simultaneously experiencing extremely high prior returns. The existence of extreme volumes cancels out any potential gains from contrarian or momentum investing strategies.Â

Suggested Citation

  • Megan Yuan Sun, 2013. "Stock Price Behavior around Extreme Trading Volumes," Accounting and Finance Research, Sciedu Press, vol. 2(1), pages 1-61, February.
    • Handle: RePEc:jfr:afr111:v:2:y:2013:i:1:p:61
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    References listed on IDEAS

    as
    1. Cooper, Michael, 1999. "Filter Rules Based on Price and Volume in Individual Security Overreaction," The Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 901-935.
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    5. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-168, February.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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