NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trading Volume and Serial Correlation in Stock Returns

John Y. Campbell, Sanford J. Grossman, Jiang Wang

NBER Working Paper No. 4193
Issued in October 1992
NBER Program(s):   AP

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.

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Document Object Identifier (DOI): 10.3386/w4193

Published: Quarterly Journal of Economics, vol cviii (4), November 1993, pp. 905-939 citation courtesy of

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