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The Information Content of Abnormal Trading Volume


  • Emanuele Bajo

    Corresponding author
    1. The author is from the Department of Management, University of Bologna, Italy. He would like to thank the editor, the anonymous referees, Marco Bigelli, Sandro Sandri, Giovanni Petrella, Raghavendra Rau, Nikhil Varaiya and Petko Kalev for their valuable and helpful suggestions. He would also like to thank Elena Sapienza and Stefano Mengoli for providing him with some of the data. The author is solely responsible for any remaining errors.
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Address for correspondence: Emanuele Bajo, Department of Management, University of Bologna, Via Capo di lucca, 34 - 40126 Bologna, Italy.


Abstract:  This paper investigates the way in which abnormal trading volume reveals new information to market participants. It is generally thought that trading volume is an efficient proxy for information flow and enhances the information set of investors. However, no research has related the presence of abnormal trading volume to firm characteristics, such as ownership and governance structure, which also have a theoretical link to information quality. I find strong excess returns around extreme trading levels, which are only moderately attributable to information disclosure. Moreover, these returns are not caused by liquidity fluctuations since prices do not reverse over the following period. In contrast, there is evidence of price momentum, suggesting that traders can implement successful portfolio strategies based on observation of current volumes.