Expected return, volume, and mispricing

Expected return, volume, and mispricing

We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation methods, a...

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Bibliographic Details
Main Authors: HAN, Yufeng, HUANG, Dashan, HUANG, Dayong, ZHOU, Guofu
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2022
Subjects:
Turnover
Trading volume
Mispricing
Disagreement
Expectation bias
Finance and Financial Management
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/6898
https://ink.library.smu.edu.sg/context/lkcsb_research/article/7897/viewcontent/SSRN_id3171375.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation methods, and controlling for variables that are known to have amplification effects on mispricing. By attributing trading volume to investor disagreement, we show that our results are consistent with the recent theoretical model of Atmaz and Basak (2018) in that investor disagreement predicts stock returns conditional on expectation bias.

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