Abstract
This paper investigates the relationship between trading volume and stock momentum by focusing on two competing theories: investor disagreement and disposition effects. We uniquely identify investor disagreement as the primary driver behind volume-induced momentum spreads (MomSPRDs), defined as the return differential between high- and low-characteristic groups in momentum portfolios. We further demonstrate that MomSPRDs exhibit significant variation across different stages of the business cycle. Moreover, neither macro risk premiums nor crash risks can fully account for the magnitude of MomSPRDs, suggesting that a significant portion of these spreads is attributable to investor behavioral biases. However, the composition of risk premiums versus behavioral components may vary over time.
Published Version
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