The economic and predictive value of trading volume growth: a tale of three moments

Abstract

This work studies long-horizon return predictability of volume growth realizations. High-mean volume growth is argued to reduce estimation risk and high volatility and skewness are interpreted as factors which increase estimation risk. It is found that stocks with high-mean trading volume growth during the past 12 months experience strong positive excess returns that do not reverse themselves over the next 5-years. Stocks with high volatility and skewness of excess turnover growth have negative future risk-adjusted returns which are economically significant. The conclusion is that increases in trading volume growth are predictive of future returns.

Notes

¹ They do make reference to 4-year changes in trading volume as a robustness test.

² The regression is repeated using growth in turnover, excess turnover that is not firm specific, as well as unadjusted turnover and turnover growth. The outcomes are similar in all cases.