Abstract
This paper examines the determinants of trading volume for individual stocks in the emerging India's stock markets. Our results demonstrate that stock-specific characteristics explain a significant portion of the variation in Indian stock trading volume. We show that weekly turnover, expressed as a percentage of shares outstanding, is significantly related to firm's alpha and beta estimated from OLS market model, the standard deviation of residuals from the OLS market model, average price, size, first order auto covariance of returns, its institutional ownership and whether or not options trade is permitted on this stock. Stock trading volume first increases in the level of institutional ownership, reaching its peak at 33% (47%) respectively for the BSE (NSE) stocks and then decreases. We find the evidence that past price extremes influence investors' trading decisions. We document that trading volume is higher when a stock trades above the highest or below the lowest price attained during a 52 weeks benchmark period and then gradually subsides. This result suggests that behavioral factors affect investors' trading decisions in the Indian equity markets. The compulsory rolling settlement had a significant impact on stock's trading volume. We also saw that across a broad sample of stocks, trading volume for a firm depends on which industry the particular firm belongs.
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