Stock Price Behavior around Extreme Trading Volumes

Abstract

The study investigates how the coexistence of extreme returns and volumes predicts future stock returns and how the high-volume return premium is affected by the coexistent extreme returns.  It also examines the patterns of returns, volatility, and skewness around extreme trading volumes.  We find that stocks exhibit different return and volatility patterns prior to and after extreme volumes. We also find that the high-volume return premium only exists among small size stocks which simultaneously experience extremely low prior returns. The high-volume return premium disappears for larger size stocks experiencing extremely low prior returns.   Regardless of the firm size, the high-volume return premium only lasts for a very short time period for stocks simultaneously experiencing extremely high prior returns.  The existence of extreme volumes cancels out any potential gains from contrarian or momentum investing strategies.