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The Real Side of the High-Volume Return Premium

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  • Kaniel, Ron
  • Israeli, Doron
  • Sridharan, Suhas A.

Abstract

Prior literature demonstrates that an 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, nor by subsequent earnings information, and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.

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  • Kaniel, Ron & Israeli, Doron & Sridharan, Suhas A., 2020. "The Real Side of the High-Volume Return Premium," CEPR Discussion Papers 14587, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14587
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    Cited by:

    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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