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Quantitative Finance and Economics

2017, Volume 1, Issue 2: 186-204. doi: 10.3934/QFE.2017.2.186
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Research article

Absolute Stock Returns and Trading Volumes: Psychological Insights

  • Economics and Management Department, The Max Stern Yezreel Valley College, P.O. Emek Yezreel, 19300, Israel
  • Received: 11 April 2017 Accepted: 21 June 2017 Published: 14 July 2017

  • The present study explores the effect of anchoring on stock trading volumes. I hypothesize that if on the days when the market index rises (falls), a given stock's return is higher (lower) than the market return, potentially perceived as a psychological "anchor", then investors may treat that as a salient event and subsequently increase their trading activity in the stock. Employing a large sample of daily price and trading volume data, I find support for this hypothesis, documenting that average abnormal daily stock trading volumes are significantly higher on the days when absolute daily stock returns are higher than the contemporaneous absolute market returns. This effect is found to be stronger on the days of negative stock and market returns, suggesting that on these days, investors are probably more inclined to treat the market returns as anchors when making their trading decisions. The effect remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock and market returns, historical stock returns and volatilities, and company-specific events, like earnings announcements and dividend payments.

    Citation: Andrey Kudryavtsev. Absolute Stock Returns and Trading Volumes: Psychological Insights[J]. Quantitative Finance and Economics, 2017, 1(2): 186-204. doi: 10.3934/QFE.2017.2.186

    Related Papers:

  • The present study explores the effect of anchoring on stock trading volumes. I hypothesize that if on the days when the market index rises (falls), a given stock's return is higher (lower) than the market return, potentially perceived as a psychological "anchor", then investors may treat that as a salient event and subsequently increase their trading activity in the stock. Employing a large sample of daily price and trading volume data, I find support for this hypothesis, documenting that average abnormal daily stock trading volumes are significantly higher on the days when absolute daily stock returns are higher than the contemporaneous absolute market returns. This effect is found to be stronger on the days of negative stock and market returns, suggesting that on these days, investors are probably more inclined to treat the market returns as anchors when making their trading decisions. The effect remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock and market returns, historical stock returns and volatilities, and company-specific events, like earnings announcements and dividend payments.


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