Momentum and Reversals in Equity-Index Returns During Periods of Abnormal Turnover and Return Dispersion


  • Robert Connolly,

  • Chris Stivers

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    • Connolly is from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, and Stivers is from the Terry College of Business at the University of Georgia. We thank Jennifer Conrad; Mike Cooper; Shane Corwin; Roger Edelen; Rick Green (the editor); John Heaton; Charles Jones; Marc Lipson; Stewart Mayhew; Joe Sinkey; Jiang Wang; Harold Zhang; an anonymous referee; and seminar participants at the 2000 American Finance Association meeting, the 1999 Financial Management Association meeting, and the University of Georgia for their comments. Stivers also thanks the Federal Reserve Bank of Atlanta for research support. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. All errors are our own.


We document new patterns in the dynamics between stock returns and trading volume. Specifically, we find substantial momentum (reversals) in consecutive weekly returns when the latter week has unexpectedly high (low) turnover. This pattern is evident in equity indices, index futures, and individual stocks. Similarly, we also find that the autocorrelation in equity-index returns is increasing with the unexpected dispersion across the latter week's firm-level returns. Weeks with extreme turnover and dispersion shocks (both high and low) tend to have more macroeconomic news releases. Our findings bear on understanding price formation and the economic interpretation of turnover and dispersion shocks.