Abstract
Extending Kaniel, Ozoguz, and Starks (2012, J. Financ. Econ.) and many others, we present first empirical evidence that indicates the high volume return premium is linked to economic fundamentals. The volume premium has strong predictive power for future industrial production growth and other macroeconomic indicators with or without controls for common equity pricing factors and business cycle variables. However, only a small portion of the volume premium can be attributed to its co-movement with equity return factors and economic risk factors. Mis-pricing-based factor models also fail to adequately explain the return anomaly.
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