© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. TRADING VOLUME TRADING VOLUME 박사과정 김선영 ( )

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. SOME TIPS · Stock Analysis ☞ Fundamental Analysis ☞ Fundamental Analysis : 재무제표, 사업성, 성장성 → 주가와 내재가치비교 : 재무제표, 사업성, 성장성 → 주가와 내재가치비교 ☞ Technical Analysis ☞ Technical Analysis : 과거주가, 거래량분석 → 주가움직임 파악 : 과거주가, 거래량분석 → 주가움직임 파악 · Trading Volume Analysis ☞ Granville : " 거래량은 주가의 원동력이며 그림자다 " ☞ Granville : " 거래량은 주가의 원동력이며 그림자다 " ☞ 거래량은 추세강도와 변화시점 파악의 지표 ☞ 거래량은 추세강도와 변화시점 파악의 지표 ☞ 매수, 매도 강도 및 장세전환 추정 ☞ 매수, 매도 강도 및 장세전환 추정 ☞ 거래량이 주가변동에 선행 ☞ 거래량이 주가변동에 선행 - 거래량 감소추세 → 증가시작 → 주가상승 - 거래량 감소추세 → 증가시작 → 주가상승 - 거래량 증가추세 → 감소시작 → 주가하락 - 거래량 증가추세 → 감소시작 → 주가하락 - 주가 바닥국면 진입 → 주가 하락해도 거래량 증가 - 주가 바닥국면 진입 → 주가 하락해도 거래량 증가 - 주가 천정국면 진입 → 주가 상승해도 거래량 감소 - 주가 천정국면 진입 → 주가 상승해도 거래량 감소 - 1 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. SOME TIPS · 거래량 분석지표 ☞ OBV(On Balance Volume) ☞ OBV(On Balance Volume) : 상승일의 거래량 누계에서 하락일의 거래량차감 도표화 : 상승일의 거래량 누계에서 하락일의 거래량차감 도표화 ☞ VR(Volume Ratio)= (N 일간주가상승일합계 /N 일간주가하락일합계 )/*100 ☞ VR(Volume Ratio)= (N 일간주가상승일합계 /N 일간주가하락일합계 )/*100 N=20,25 일, 450: 과열, 150: 보통, 70: 침체 N=20,25 일, 450: 과열, 150: 보통, 70: 침체 - 2 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. SOME TIPS [Figure 1 – 주가지수, 거래량과 OBV] - 3 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. SOME TIPS [Figure 2 – 주가지수, 거래량과 VR] - 4 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅰ. Motivation 1. Trading volume(activity) & direction of future stock price movement - High volume return premium seems to exist in stock prices? YES - Even larger premium ; not experienced abnormal return at abnormal volume? YES 2. High Volume Return Premium & Risk - This premium is the product of risk? NO ;Whether market risk rise after large trading : NOT RISE ;Whether volume effect returns dominate diversified strategies : DOMINATE ;Whether information risk(bid-ask spread) goes in opposite or same direction : Likelyhood that some information has not been made public : OPPOSITE - Whether results are robust to different measures of volume : ROBUST - Is it driven by firm announcement ? NO - 5 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅱ.Their documentation compared to Prior studies 1. Contrarian investment strategies perform better conditioned on past trading volume in addition to past returns(Conrad, Hameed and Niden(1994)) ;Past trading volume alone can generate positive returns ;same magnitude as returns documented by CHN, but long lived information for future stock price(3weeks/20weeks) 2. Trading volume is just joint relationship between current and future returns(Campbell, Grossman, Wang(1993)) ;results are even stronger when past prices are not large and small ;trading volume does not just emphasize the autocorrelation in returns (Eliminating top or bottom 30% returns) - 6 -

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅱ.Their documentation compared to Prior studies 3. Large trading volume accompanied by lower expected returns (Brennan, Lee(1998)) Investors demand a premium for holding illiquid stocks ;permanent trading volume( on average trading activity ) : small return trading volume shocks over a particular day or week : appreciated [Figure 3] Evolution of the average cumulative returns of stocks chosen according to the trading volume that experienced the day before this graph starts

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅲ. Conclusion 1. Periods of extreme high volume contain positive information, low volume negative information This effect holds when the formation period is a day or a week. The size of the average returns tends to be larger with small firms Past trading volume contains information about future prices changes that is orthogonal to that contained in past returns 2. The high volume components of our volume based portfolios actually have lower systematic risk than the low volume components The stocks' bid-ask spreads following periods of high volume are significantly smaller than average bid-ask spreads, suggesting that information risk also goes down after periods of unusually high trading activity

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅲ. Conclusion 3. The results do not rely on a few outlyers generated around firm announcements. 4. High volume return premium is probably related to stock visibility and trading constraints. Lightened visibility created by abnormal volume shock broadens a stock's investor base, resulting in upward pressure on the stock price

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅲ. Conclusion · Trading strategy : Zero Investment Portfolio, reference return portfolio · Data & Methodology - daily data on NYSE(1963.8~ ) - trading volume : high(10%), normal, low(10%) - Firm size : By market capitalization - Results : daily, weekly

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅱ.Their documentation compared to Prior studies [Table 1] Average net returns of the zero investment and the reference return strategies using normal return subsamples of the daily and weekly CRSP samples

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper1] "The High Volume Return Premium" (Simon Gervais, Ron Kainel, Dan Mingelgrin) Ⅱ.Their documentation compared to Prior studies [Table 2] Average returns of the zero investment and the reference return portfolio formation strategies for the daily CRSP sample

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) Prior [Paper1] reports positive relationship between trading volume & future stock returns, but this paper contains issues for trading volume and return, event like these 1. What is the cause(source of the profits) of higher returns of abnormal trading volume stock around earnings announcements? Earnings announcements lead to a substantial increase in trading volume 2. What is the return of high volume(buying) minus low volume (selling) portfolio conditioned on the magnitude of Capital Gains Overhang? Over 10% per year 3. Are these returns significant and robust to conventional risk adjustments? Yes

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim)

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) * Abnormal Volume Calculation [A.1] [A.2]

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) 4. What is findings? a)High returns accruing to high volume stocks are associated with selling pressure. b)It is independent of fundamentals c)Selling pressure comes from investor's selling decision on the magnitude of unrealized capital gains or losses; Investor's selling decisions are not entirely on rational forecasts of stock prices, but are also based on a comparison between purchase prices and current stock prices(By CGO values) d)Evidence shows extra selling pressure for stocks with large capital losses around earnings announcement

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) e)Well known disposition effect may not hold for stocks with large unrealized capital losses around earnings announcement f)EAVP around earnings announcement suggest that stocks with high abnormal volume tend to become under-priced g)EAVP is stronger in small stocks than in larger stocks. But profit significantly weakens after transaction costs are taken into account

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) h)EAVP & Standardized Unexpected Earnings(SUE) ; GOOD NEWS-First SUE tercile, BAD NEWS-Third SUE tercile Among stocks with large losses, EAVP is stronger for both good and bad news. Bad news act as the last straw, triggering excess selling as investor realize their losses Among stocks with large gains, EAVP is stronger in the case of good news. i)While gain realization seems to be generally driven by the arrival of the good news, loss realization appears to be driven both by the arrival of a good news(good exit opportunity) and by the arrival of bad news(disappointment selling) Loss realization for bad news stocks with large capital losses is particularly intriguing since it clearly shows that the EAVP is distinct from the well known post earnings announcement drift

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) Figure 4 [Figure 4 - Timeline for Variable Construction]

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) [Table 3] Raw and Risk Adjusted Returns for Monthly Calendar Time Portfolios Sorted by Abnormal Volume

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) [Table 4] Raw and Risk Adjusted Returns for Monthly Calender Time Portfolios Double Sorted by CGO and Abnormal Volume

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) Figure 5 [Figure 5 - Raw and Risk Adjusted EAVP by CGO Quintile] Disposition effect : No Disposition effect : OK Not all trading volume are created equal for future returns

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) Trading Strategy ; Calendar time trading strategy Takes long(short) positions in stocks that experience high(low) abnormal volume around earnigs announcements

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) [Table 5] [Table 5] Raw and Risk Adjusted Returns for Monthly Calendar Time Portfolios Triple Sorted by SUE, CGO, and Abnormal Volume

© Development Dimensions Int’l, Inc.,Tongro. All rights reserved. [Paper2] “Not All Trading Volumes are Created Equal : Capital Gains Overhang and the Earnings Announcement Volume Premium” (Wonseok Choi, Kenton Hoyem, Jung-Wook Kim) [Table 6] [Table 6] Raw and Risk Adjusted Returns for Monthly Calendar Time Portfolios Triple Sorted by Size, CGO, and Abnormal Volume

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