Abstract
Can trading volume help unravel the long-term overreaction puzzle? With portfolios of non-S&P 500 NYSE stocks, we show that (1) both the high- and low-volume (abnormal volume) contrarian portfolios earn a much higher market-adjusted excess return than the normal-volume contrarian portfolio, (2) however, when leverage-induced risk is factored in, excess returns from contrarian portfolios with normal- and low-volume stocks are insignificant, (3) only excess returns from high-volume contrarian stocks are significant and cannot be explained by the time-varying risk and return framework, and (4) such high-volume, risk-adjusted excess returns arise mainly from winner (glamour) stocks.
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