EXTREME TRADING VOLUME AND EXPECTED RETURN (Study to Companies Listed in Indonesia Stock Exchange 2008-2012 Period)
Abstract: Trading volume has
been known as a reliable measurement for stock liquidity. Nevertheless, there
are different opinions regarding trading volume and expected return in stocks
investment. Wang and Cheng (2004) found that there are differences in expected
return between stocks which experience extreme trading volume in where extreme
high volume stocks associated with lower expected return than extreme low
volume stocks. In contrary, Gervais et. al (2001) found that extreme high
volume stocks associated with higher expected return than extreme low volume
stocks. This research aims to determine the difference in expected returns
between various portfolios sorted based on extreme trading volume. This research
conducted on 80 stocks listed in Indonesia Stock Exchange 2008 to 2012 period.
This research is conducted following previous researches such as Amihud and
Mendelson (1986), Brennan et. al. (1998), Datar et. al. (1998), Gervais et. al.
(2001), Wang and Cheng (2004), and Baker and Stein (2004). This research also
interacted the extreme trading volume with security characteristics such as
past performance, firm size, and Book-to-Market or BM value.
The portfolio formation method in this research is referring to return
portfolio approach by Gervais et. al. (2001). Using this method, portfolios
formed and determined its average expected returns. After that T-test will be
performed to determine the difference in expected returns between each
contradicting portfolios like extreme high and extreme low volume, extreme
high-winner stocks and extreme low-loser stocks, extreme high-large stocks and
extreme low-small stocks, and extreme high-glamour stocks and extreme low-value
stocks.
The results shows that even though the results of all hypotheses testing
mathematically support the hypotheses, but the statistically, as calculated by
T-Test, there’s no notable different impact of extreme trading volume and
security characteristics in Indonesia Stock Exchange. It means that this
portfolio strategy does not have significant effect in Indonesia Stock
Exchange. This research also found a unique phenomenon in extreme trading
volume and expected return study in Indonesia Stock Exchange. Despite the
sorting methods, all portfolios showed the same behavior; the average returns
chart showed appreciation during 0 week to 1 week of evaluation period but
dropped later over the period of 3 weeks before reversal occurred. The
phenomena indicated that the market players realized that there are
speculations in trading activity which affect the trading volume.
Author: Novita Indah Nugraheni,
Prasetiono
Journal Code: jpmanajemendd131120
