Wednesday, December 9, 2015 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

We examine the information content of extreme trading activity for portfolio formation to investigate whether high-volume return premium phenomenon (Gervais, Kaniel and Mingelgrin, 2001) exists in Chinese stock markets or not since stock exchanges were established. Using a novel idea of a randomly selected sample of 500 formation days for each of three examination periods, we find that both high-volume and low-volume portfolios perform worse than market average. And high-volume stocks generate inferior returns than low-volume stocks in post stock-split reform period. These are particularly true for small stocks. To identify the probable drivers, we report that the stocks in which more institutional investors are involved show significantly less high-volume return discount. High returns in recent past, triggering the high volume of trading, which end up high volume return discount is likely due to investors’ overconfidence.