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The Cross-Section of Extrapolative Belief and the High-Volume Premium

Abstract Views
123
Author
Huaixin Wang
Category
Financial
Date Posted
2022/04/20
Date Retrieved
2022/05/15
Date Revised
2022/05/13
Date Written
2022/03/31
Description
Previous studies show that stocks with abnormally high volumes are associated with high subsequent returns. Using an extrapolation measure implied by survey evidence and theoretical models I show that the high-volume premium is more pronounced among firms with low extrapolative value whereas the premium is mitigated among firms with high extrapolative value. The difference in the high-volume premium between low- and high- extrapolative value firms can be predicted by DOX the market-wide extrapolation level (Cassella and Gulen 2018). I also provide evidence that the documented cross-sectional variation of the high-volume premium is not driven by stock visibility. The results indicate the extrapolative expectation is an important contributor to cross-sectional expected returns.
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JEL Classifications
G12 G41
Keywords
Extrapolation Trading volume Anomaly Mispricing
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Pages
53
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4080285
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