The more we know, the less we agree: A test of the trading horizon heterogeneity theory

Lili Dai, Jerry T. Parwada, Donald Winchester, Bohui Zhang

Research output: Contribution to journalArticlepeer-review

Abstract

We examine the Kondor theoretical explanation of an enduring puzzle: trading volumes and stock return volatility peak after the release of public information. Using a comprehensive data set of institutional holdings and earnings announcements, we find supporting evidence that the proportion of short-term investors is positively associated with post-announcement spikes in trading volume and return volatility. This finding survives in the identification test based on the annual reconstitutions of the Russell 1000 and 2000 indices. We show our results largely withstand several alternative explanations related to the constitution of institutional investors, informed trading, and heterogeneous beliefs.
Original languageEnglish
JournalThe Financial Review
DOIs
Publication statusE-pub ahead of print - 30 Jul 2021
Externally publishedYes

Keywords

  • higher order expectations
  • noisy rational expectations model
  • public information
  • trading volume

Fingerprint

Dive into the research topics of 'The more we know, the less we agree: A test of the trading horizon heterogeneity theory'. Together they form a unique fingerprint.

Cite this