High-Volume Return Premium And Volume-Liquidity Premium

Abstract

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; line-height: normal; text-indent: 0in; mso-pagination: none;" class="normal15"><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">This study investigates </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">the interaction of </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">volume-liquidity premium and high-volume return premium </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">by</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;"> </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">simultaneously </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">consider</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">ing</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;"> two factors that significantly impact future stock returns: trading volume norms and trading volume extremes.<span style="mso-spacerun: yes;"> </span>The study finds that high-volume return premium does exist. However, the high-volume return premium behaves differently for liquid and illiquid stocks.<span style="mso-spacerun: yes;"> </span>The high-volume return premium disappears very quickly </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">for illiquid </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">stocks, while it persists</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;"> much</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;"> longer for </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">highly liquid </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">stocks. The study also shows evidence that supports volume-liquidity premium.<span style="mso-spacerun: yes;"> </span>But the volume-liquidity premium behaves differently after stocks experience an extremely high/low volume shock.<span style="mso-spacerun: yes;"> </span>The volume-liquidity premium only exists for </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">small size </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">stocks </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">after an extremely low</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;"> volume </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">shock, but this volum</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">e-liquidity premium totally disappears</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;"> for stocks experiencing an extremely high </span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;">volume shock</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: ZH-CN;">.</span><span style="color: black; font-family: "Times New Roman","serif"; font-size: 10pt; mso-themecolor: text1;"> </span></p><span style="font-family: Times New Roman; font-size: small;"> </span>