Vaasan yliopiston opinnäytteet

Kauppatieteellinen tiedekunta, 2003

Kuusela, Matti

EFFECT OF STOCK TRADING VOLUME ON FUTURE STOCK RETURNS ON FINNISH STOCK MARKET

Ohjaaja/Valvoja (DI):
Petri Sahlström
Tutkinto:
Kauppatieteiden maisteri
Laitos:
Laskentatoimen ja rahoituksen laitos
Pääaine:
Laskentatoimi ja rahoitus
Linja:
Yrityksen rahoituksen linja
Sivumäärä:
81
The purpose of the thesis is to investigate whether quantity of shares traded on a day affects evolution of stock prices during subsequent 20 trading days in Helsinki Exchanges in Finland. Both low volume and high volume effects on future stock returns are studied. Especially interesting is whether high volume shocks are followed by positive abnormal returns and whether low volume shocks are followed by negative abnormal returns on average. These effects are studied by implementing High volume, Low volume and High volume return premium strategies.

All the stocks in Helsinki Exchanges which have fulfilled specified time and volume criterions are taken into account in the thesis. Data is extracted from daily volumes and logarithmic end of the day returns during 2.1.1990 – 29.12.2000. Reference return portfolio approach, same as in the study of Gervais, Kaniel & Mingelgrin (2001), is used also in this thesis. Shares are categorized in low volume, high volume and reference return portfolios on every portfolio formation day according to volume experienced on the day in relation to past volume.

The results of the study shows that returns of High volume, Low volume and combined High volume return premium strategies seem to be positive and strategies profitable. Although average arbitrage returns of the strategies are positive, returns do not differ significantly from zero. Statistically insignificant returns of the strategies means that nor low volume neither high volume affect subsequent 20-day returns. When volume do not predict future evolution of stock prices and there is no inter-temporal volume – return phenomenon, the economic significance of these strategies can not be verified with confidence.
Avainsanat:
Volume, stock price, predictability, market efficiency
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