Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
권호 표지
DOI QR코드

DOI QR Code

Trading Volume and Overpricing of Lottery-type Stocks

거래량이 복권특성 종목의 기대수익률에 미치는 영향

  • Yong-Ho Cheon (School of Business Administration, Incheon National University)
  • Received : 2023.02.28
  • Accepted : 2023.03.25
  • Published : 2023.03.31
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - The purpose of this study is to examine whether trading volume amplifies the extent to which lottery-type stocks are overpriced, and whether economic sentiment index explains time-variation in the magnitude of the volume amplification effect. Design/methodology/approach - We examine monthly returns on 5x5 monthly bivariate portfolios formed by lottery characteristics (measured by maximum daily return) and trading volume. In addition, we perform time-series regression tests to examine how the volume amplification effect changes in high and low economic sentiment periods, after controlling for Fama-French three factors. Findings - Our bivariate portfolio analysis shows that the overpricing of lottery-type stocks are mostly pronounced among high trading volume stocks. In contrast, for low trading volume stocks, overpricing of lottery-type stocks appears to vanish. Furthermore, the amplification effect of trading volume on overpricing of lottery-type stock is concentrated in high economic sentiment periods. Research implications or Originality - This study is the first attempt to examine whether trading volume drives lottery-type stocks' overpricing in the Korean stock market. Furthermore, our analysis unveils the time-varying nature of volume amplification effect. The results suggest that trading volume might play a important hidden role in asset pricing, opening a new line of researches in the future.

Keywords

References

  1. 감형규, 신용재 (2012), "과거 거래량과 수익률에 기초한 포트폴리오 투자성과 분석", 기업경영연구, 19(1), 243-259.
  2. 강장구, 심명화 (2014), "복권 성향의 주식에 대한 선호와 주식수익률의 횡단면", 재무연구, 27(2), 297-332.
  3. 이용대, 박현기, 김수욱 (2015), "한국 주식시장에서 주식 수익률과 거래량간의 동적관계 분석", 산업경제연구, 28(2), 759-758.
  4. Albuquerque, R. (2012), "Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns", Review of Financial Studies, 25(5), 1630-1673. https://doi.org/10.1093/rfs/hhr144
  5. Amihud, Y. (2002), "Illiquidity and Stock Returns: Cross-section and Time-series Effects", Journal of Financial Markets, 5(1), 31-56. https://doi.org/10.1016/S1386-4181(01)00024-6
  6. Atmaz, A. and S. Basak (2018), "Belief Dispersion in the Stock Market", Journal of Finance, 73(3), 1225-1279. https://doi.org/10.1111/jofi.12618
  7. Baker, M. and J. Wurgler (2006), "Investor Sentiment and the Cross-section of Stock Returns", Journal of Finance, 61(4), 1645-1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
  8. Bali, T., N. Cakici and R. Whitelaw (2011), "Maxing out: Stocks and Lotteries and the Cross-section of Expected Returns", Journal of Financial Economics, 99(2), 427-446. https://doi.org/10.1016/j.jfineco.2010.08.014
  9. Banerjee, S. (2011), "Learning from Prices and the Dispersion in Beliefs", Review of Financial Studies, 24(9), 3025-3068. https://doi.org/10.1093/rfs/hhr050
  10. Barberis, N.C., Greenwood, R., Jin, L., and A. Shleifer, "Extrapolation and Bubbles", Journal of Financial Economics, 129(2), 203-227.
  11. Barberis, N.C. (2018), "Psychology-based Models of Asset Prices and Trading Volume", Handbook of Behavioral Economics-Foundations and Applications 1., North Holland, 79-175.
  12. Boehme, R.D., B.R. Danielsen and S.M. Sorescu (2006), "Short-sale Constraints, Differences of Opinion, and Overvaluation", Journal of Financial and Quantitative Analysis, 41(2) 455-587. https://doi.org/10.1017/S0022109000002143
  13. Campbell, J.Y., S.J. Grossman and J. Wang (1993), "Trading Volume and Serial Correlation in Stock Returns", Quartely Journal of Economics, 108(4), 903-939. https://doi.org/10.2307/2118454
  14. Carhart, M.M. (1997), "On Persistence of Mutual Fund Performance", Journal of Finance, 52(1), 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
  15. Cheon, Y-H and K.H. Lee (2018), "Maxing Out Globally: Individualism, Investor Attention, and the Cross-section of Expected Stock Returns", Management Science, 64(12), 5807-5831. https://doi.org/10.1287/mnsc.2017.2830
  16. Daniel, K. and D. Hirshleifer (2015), "Overconfident Investors, Predictable Returns, and Excessive Trading", Journal of Economic Perspectives, 29(4), 61-88. https://doi.org/10.1257/jep.29.4.61
  17. Diether, K.B., C.J. Malloy and A. Scherbina (2002), "Differences of Opinion and the Cross-section of Stock Returns", Journal of Finance, 57(5), 2113-2141. https://doi.org/10.1111/0022-1082.00490
  18. Fama, E.F. and K.R. French (1993), "Common Risk Factors in the Returns on Stocks and Bonds", Journal of Financial Economics, 33, 3-56. https://doi.org/10.1016/0304-405X(93)90023-5
  19. Fama, E.F. and K.R. French (2015), "A Five-factor Asset Pricing Model", Journal of Financial Economics, 116(1), 1-22. https://doi.org/10.1016/j.jfineco.2014.10.010
  20. Fama, E.F. and J. MacBeth (1973), "Risk, Return, and Equilibrium: Empirical Tests", Journal of Political Economy, 81(3), 607-636. https://doi.org/10.1086/260061
  21. Gervais, S., R. Kaniel, and D.H. Mingelgrin (2001), "The High-volume Return Premium", Journal of Finance, 56(3), 877-919. https://doi.org/10.1111/0022-1082.00349
  22. Han, Y., D. Huang, D. Huang and G. Zhou (2022), "Expected Return, Volume, and Mispricing", Journal of Financial Economics, 143(3), 1295-1315. https://doi.org/10.1016/j.jfineco.2021.05.014
  23. Hong, H. and J.C. Stein (2007), "Disagreement and the Stock Market", Journal of Economic Perspectives, 21(2), 109-128. https://doi.org/10.1257/jep.21.2.109
  24. Jegadeesh, N. (1990), "Evidence of Predictable Behavior of Security Returns", Journal of Finance, 45(3), 881-898. https://doi.org/10.1111/j.1540-6261.1990.tb05110.x
  25. Lee, C.M.C and B. Swaminathan (2000), "Price Momentum and Trading Volume", Journal of Finance, 55(5), 2017-2069. https://doi.org/10.1111/0022-1082.00280
  26. Lehmann, B. (1990), "Fads, Martingales, and Market Efficiency", Quarterly Journal of Economics, 105(1), 1-28. https://doi.org/10.2307/2937816
  27. Newey, W. and K. West (1987), "A Simple, Positive Semi-definite Heteroskedasticity and Autocorrelation Consistent Covariance Matrix", Econometrica, 55(3), 703-708. https://doi.org/10.2307/1913610
  28. Kaniel, R. A. Ozoguz and L. Starks (2012), "The High Volume Return Premium: Cross-country Evidence", Journal of Financial Economics, 103(2), 255-279. https://doi.org/10.1016/j.jfineco.2011.08.012
  29. Kyle, A.S (1985), "Continuous Auctions and Insider Trading", Econometrica, 53(6), 1315-1335. https://doi.org/10.2307/1913210
  30. Scheinkman, J. and W. Xiong (2003), "Overconfidence and Speculative Bubbles", Journal of Political Economy, 111(6), 1183-1120.
  31. Stambaugh, R.F., J. Yu and Y. Yuan (2015), "Arbitrage Asymmetry and the Idiosynstacratic Volatility Puzzle", Journal of Finance, 70(5), 1903-1948. https://doi.org/10.1111/jofi.12286
  32. Wang, J. (1994), "A Model of Competitive Stock Trading Volume", Journal of Political Economy, 102(1), 127-168. https://doi.org/10.1086/261924