The Effect of Stock Return Sequences on Trading Volumes
The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price “has” to subs...
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MDPI AG
2017-10-01
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| Series: | International Journal of Financial Studies |
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| Online Access: | http://www.mdpi.com/2227-7072/5/4/20 |
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doaj-art-c5c20f73d7c74d21ad4cc9c811b69ca52018-09-02T07:07:37ZengMDPI AGInternational Journal of Financial Studies2227-70722017-10-01542010.3390/ijfs5040020ijfs5040020The Effect of Stock Return Sequences on Trading VolumesAndrey Kudryavtsev0Economics and Management Department, The Max Stern Yezreel Valley College, P.O. Emek Yezreel, Jezreel Valley 1930000, IsraelThe present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price “has” to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock’s price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments.http://www.mdpi.com/2227-7072/5/4/20gambler’s fallacyinvestment decisionsstock return sequencestrading volumes |
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| language |
English |
| format |
Article |
| author |
Andrey Kudryavtsev |
| spellingShingle |
Andrey Kudryavtsev The Effect of Stock Return Sequences on Trading Volumes International Journal of Financial Studies gambler’s fallacy investment decisions stock return sequences trading volumes |
| author_facet |
Andrey Kudryavtsev |
| author_sort |
Andrey Kudryavtsev |
| title |
The Effect of Stock Return Sequences on Trading Volumes |
| title_short |
The Effect of Stock Return Sequences on Trading Volumes |
| title_full |
The Effect of Stock Return Sequences on Trading Volumes |
| title_fullStr |
The Effect of Stock Return Sequences on Trading Volumes |
| title_full_unstemmed |
The Effect of Stock Return Sequences on Trading Volumes |
| title_sort |
effect of stock return sequences on trading volumes |
| publisher |
MDPI AG |
| series |
International Journal of Financial Studies |
| issn |
2227-7072 |
| publishDate |
2017-10-01 |
| description |
The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price “has” to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock’s price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments. |
| topic |
gambler’s fallacy investment decisions stock return sequences trading volumes |
| url |
http://www.mdpi.com/2227-7072/5/4/20 |
| _version_ |
1612654118423232512 |