The Cross-Section of Expected Trading Activity

Chordia, Tarun; Huh, Sahn-Wook; Subrahmanyam, Avanidhar

doi:10.1093/rfs/hhl014

Cited by 213 publications

(175 citation statements)

References 86 publications

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“…The volume of liquidity trading may be a function of past returns as predicted by a number of theoretical models (e.g., De Long et al 1990;Hong and Stein 1999;Hirshleifer et al 1994Hirshleifer et al , 2006. Chordia et al (2007) conclude that liquidity trading is based on stock visibility (proxied by firm size, age, price and the book-to-market ratio), portfolio rebalancing needs, differences of opinion (proxied by forecast dispersion and firm leverage), and uncertainty about fundamental values. Llorente et al (2002) propose a model, in which the trading process is driven by investor's expectations of the future stock price returns and exposure to the risk in equilibrium conditions.…”

Section: Stock Trading Volumes and Their Connection To Stock Returnsmentioning

confidence: 93%

“…The previous studies identify several factors that may potentially give rise to the trading process, including portfolio rebalancing reasons (e.g., Hirshleifer et al 1994Hirshleifer et al , 2006Hong and Stein 1999;Chordia et al 2007), dispersion in investors' expectations and different interpretations of information events and potential risks (e.g., Karpoff 1986Karpoff , 1987Kandel and Pearson 1995;Llorente et al 2002;Lo and Wang 2006), and presence of irrational traders (e.g., Baker and Stein 2004;Hong and Yu 2009).…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Stock Return Sequences on Trading Volumes

Kudryavtsev

2017

IJFS

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The present study explores the effect of the gambler's fallacy on stock trading volumes. I hypothesize that if a stock's price rises (falls) during a number of consecutive trading days, then the gambler's fallacy may cause at least some of the investors to expect that the stock's price "has" to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock's price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments.

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Section: Stock Trading Volumes and Their Connection To Stock Returnsmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 99%

The Effect of Stock Return Sequences on Trading Volumes

Kudryavtsev

2017

IJFS

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“…We use bank capitalization as a proxy for visibility (Merton 1987, Dahlquist and Robertsson 2001, Chordia et al 2007. Larger firms have a more diverse ownership, which leads to more active trading (Merton 1987).…”

Section: The Correlation Between Implied Mms and Volumementioning

confidence: 99%

Implied Maturity Mismatches and Investor Disagreement

Iarovyi¹,

Yosef²,

Venezia³

2017

Proceedings of the 7th Economics &Amp; Finance Conference, Tel Aviv

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“…Chordia, Huh, and Subrahmanyam (2007) report that turnover increased by 500% over the 1980 to 2002 period, and average bid-ask spreads have declined steeply in recent years (Jones, 2002). At the same time, technologies like the advent of online trading, as well as secular regulatory events such as the lowering of the tick size, have increased access to the financial markets.…”

Section: Mishelmentioning

confidence: 99%

Executive compensation and investor clientele

Li¹,

Subrahmanyam²

2009

COC

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We provide a setting where due to a lack of sophistication, possibly arising from high opportunity costs of learning about accounting conventions and financial markets, nave (unsophisticated) investors are unable to decipher true executive compensation accurately. Expected compensation is therefore higher when such investors form a more significant clientele in the market for a firm’s stock. Our model further suggests that increased information asymmetry between informed and uninformed traders may deter the entry of uninformed investors and keep executive compensation in check. Technologies that lower the cost of trading facilitate entry of relatively unsophisticated investors and raise expected compensation. In general, such compensation can be reduced through requirements that increase disclosure transparency. Empirical tests provide support to the key implication of the model that indirect executive compensation is higher in stocks with higher liquidity, which are likely to have greater unsophisticated investor participation.

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The Cross-Section of Expected Trading Activity

Cited by 213 publications

References 86 publications

The Effect of Stock Return Sequences on Trading Volumes

The Effect of Stock Return Sequences on Trading Volumes

Implied Maturity Mismatches and Investor Disagreement

Executive compensation and investor clientele

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