Trading Volume and Serial Correlation in Stock Returns

Download or read book Trading Volume and Serial Correlation in Stock Returns written by John Y. Campbell and published by . This book was released on 1992 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "non-informational" traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.