The Real Side of the High-Volume Return Premium

Doron Israeli, Ron Kaniel, Suhas A. Sridharan

Research output: Working paper

Abstract

Prior literature demonstrates that an increased trading activity of a firm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.
Original languageEnglish
PublisherINFORMS Institute for Operations Research and the Management Sciences
DOIs
Publication statusAccepted/In press - 2021

Keywords

  • Trading volume
  • Corporate investment
  • Financing cash flows
  • Investor recognition

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