The Real Side of the High-Volume Return Premium

Doron Israeli, Ron Kaniel, Suhas A. Sridharan

Research output: Working paper


A leading explanation for the high-volume return premium, first discovered by Gervais, Kaniel and Mingelgrin (2001), is the idea that extreme trading activity of a stock increases its visibility and is associated with a subsequent reduction in a firm's cost of capital. We provide evidence in support of this explanation by showing that unexpected increases in a stock's trading volume are associated with higher future corporate investment. A one standard deviation increase in unexpected trading volume is associated with 1.4% increase in annual investment expenditures and with 13.6% increase in the annual change in investment expenditures. We provide further support for this explanation by showing that the positive relation between high trading volume and future corporate investment is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.
Original languageEnglish
Publication statusSubmitted - 2020



  • Trading volume
  • Corporate investment
  • Financial constraints
  • Investor recognition

Cite this

Israeli, D., Kaniel, R., & Sridharan, S. A. (2020). The Real Side of the High-Volume Return Premium.