Empirical Tests on Turnover Information

Abstract

The objective of this study is to investigate turnover information and to test whether this information affects asset returnｓ. We explore the relationship between turnover and price momentum (reversalｓ) for Japanese stocks. In the Japanese stock market, the return reversal effect is known to be stronger than in other developed capital markets and most preceding studies show that price momentum cannot be found in the Japanese stock market. In this study, we investigate the relationship between price momentum and turnover, particularly, conditional upon the level of turnover; we find that high turnover tends to induce momentum in short-term periods. The study also investigates whether the coskewness premium affects price momentum effects, like the findings in previous studies of U.S. data, which demonstrated that coskewness helps explain some of the profitability of momentum-based trading strategies. Our results show that the coskewness of past losers is larger than that of past winners. This indicates that negative coskewness stock has a coskewness premium and that investors require a premium for negative coskewness stocks. Furthermore, the coskewness premium helps enhance price momentum as the turnover level increases and depresses return reversal effects for the highest turnover stock group.