Underreaction, Trading Volume and Post-Earnings Announcement Drift
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In this paper, we develop a model in which trading volume contains information about future stock returns. Specifically, our model explains why high trading volume is observed around public announcement and how trading volume is related to the initial underreaction to the stock price. Our model implies that high abnormal trading volume predicts stronger drift in stock return following the announcement. This result challenges the conventional view that trading volume is a proxy for arbitrage activity and thus implies quicker incorporation of information. We test the implication of the model and find supporting evidence in case of positive news. Weaker results are obtained for the negative news, which could be due to short sale constraint.
Abstract
In this paper, we develop a model in which trading volume contains information about future stock returns. Specifically, our model explains why high trading volume is observed around public announcement and how trading volume is related to the initial underreaction to the stock price. Our model implies that high abnormal trading volume predicts stronger drift in stock return following the announcement. This result challenges the conventional view that trading volume is a proxy for arbitrage activity and thus implies quicker incorporation of information. We test the implication of the model and find supporting evidence in case of positive news. Weaker results are obtained for the negative news, which could be due to short sale constraint.
참고문헌 (29)
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