Publication Type

Journal Article

Version

submittedVersion

Publication Date

3-2022

Abstract

We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation methods, and controlling for variables that are known to have amplification effects on mispricing. By attributing trading volume to investor disagreement, we show that our results are consistent with the recent theoretical model of Atmaz and Basak (2018) in that investor disagreement predicts stock returns conditional on expectation bias.

Keywords

Turnover, Trading volume, Mispricing, Disagreement, Expectation bias

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Financial Economics

Volume

143

Issue

3

First Page

1295

Last Page

1315

ISSN

0304-405X

Identifier

10.1016/j.jfineco.2021.05.014

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jfineco.2021.05.014

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