Trading Volume and Serial Correlation in Stock Returns
Year: 1993
Type: article
Abstract: This paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns. For both stock indexes and individual large stocks, the first-order daily return autocorrelation tends to decline with volume. The paper explains this phenomenon using a model in which risk-averse “market makers” accommodate buying or selling pressure from “liquidity” or “noninformational” traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.
DOI: 10.2307/2118454
Authors: J. Y. Campbell, S. J. Grossman, J. Wang
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2131675768