Volume and Autocovariances in Short-Horizon Individual Security Returns





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    • Conrad is from the University of North Carolina, Hameed is from the National University of Singapore, and Niden is from the University of Notre Dame. We would like to thank the editor, an anonymous referee, Bruce Lehmann, Craig MacKinlay, and seminar participants at the American Finance Association meeting, Michigan State University, National Bureau of Economic Research, North Carolina State University, Ohio State University, Pennsylvania State University, University of North Carolina, University of Notre Dame, University of Rochester, and University of Texas-Dallas for their comments. Any remaining errors are ours alone. Niden acknowledges financial support from the University of Notre Dame Center for Research in Business.


This article tests for the relations between trading volume and subsequent returns patterns in individual securities' short-horizon returns that are suggested by such articles as Blume, Easley, and O'Hara (1994) and Campbell, Grossman, and Wang (1993). Using a variant of Lehmann's (1990) contrarian trading strategy, we find strong evidence of a relation between trading activity and subsequent autocovariances in weekly returns. Specifically, high-transaction securities experience price reversals, while the returns of low-transactions securities are positively autocovarying. Overall, information on trading activity appears to be an important predictor of the returns of individual securities.