We thank an anonymous referee and Gerald Gay (coeditor) for their many helpful comments and suggestions. Remaining errors are our own.
DIFFERENCES OF OPINION, OVERCONFIDENCE, AND THE HIGH-VOLUME PREMIUM
Article first published online: 18 MAR 2011
© 2011 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 34, Issue 1, pages 1–25, Spring 2011
How to Cite
Huang, Z., Heian, J. B. and Zhang, T. (2011), DIFFERENCES OF OPINION, OVERCONFIDENCE, AND THE HIGH-VOLUME PREMIUM. Journal of Financial Research, 34: 1–25. doi: 10.1111/j.1475-6803.2010.01283.x
- Issue published online: 18 MAR 2011
- Article first published online: 18 MAR 2011
We argue that both differences of opinion and overconfidence lead to high-volume shocks. However, a high-volume shock induced mainly by differences of opinion (overconfidence) will lead to superior (inferior) stock returns. Empirically, Asian financial markets, in contrast to U.S. markets, reveal weaker and inconsistent high-volume premiums. The inconsistency may be attributable to investor's overconfidence. Additional evidence based on U.S. data supports this view, as a high-volume shock accompanied by increased institutional ownership yields substantially higher high-volume premiums than otherwise, and high-volume premiums generally are much stronger in down-market states than up-market states.