We find that the negative average-return differential between high- and low-volatility stocks—the so-called “volatility puzzle”—exists only among stocks with large trading volume. Such a high turnover-conditional negative volatility-future return relation is long-lived and present in various segments of the market and different time-periods—e.g., in both small and large stocks and during the low- as well as high-investor sentiment periods. Further analysis shows that the results are consistent with a stock’s large trading volume representing investors’ active learning about the stock’s uncertain parameters and helping satisfy the condition for those uncertain parameters lowering the stock’s expected return.
Keywords: Trading volume; Volatility puzzle; Learning; Parameter uncertainty; Factor-loading uncertainty
JEL classification: G10; G11; G12
학회 소식
공지사항
[2013년 제 4차] The role of trading volume in the “volatility puzzl
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2013-12-16