Predicting contemporary volume with historic volume at differential price levels: evidence supporting the disposition effect

Article Abstract:

This paper presents empirical evidence comparing two models of trading in equities - the well-known tax-loss-selling hypothesis and "the disposition effect." According to the disposition effect, investors are reluctant to realize losses but are eager to realize gains. This paper distinguishes between the two models with a new methodology that examines the relationship between volume at a given point in time and volume that took place in the past at different stock prices. The evidence overwhelmingly supports the disposition effect not only as a determinant of year-end volume, but also as a determinant of volume levels throughout the year. (Reprinted by permission of the publisher.)

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Bubbles, fads and stock price volatility tests: a partial evaluation

Article Abstract:

This is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter (28) and Shiller (40). It appears that neither small-sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is a "fads" model in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination. (Reprinted by permission of the publisher.)

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The reversal of large stock-price decreases

Article Abstract:

Extremely large negative 10-day rates of return are followed on average by larger-than-expected positive rates of return over following days. This price adjustment lasts approximately 2 days and is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon. While perhaps not representing abnormal profit opportunities, these reversals present a puzzle as to the length of the price adjustment period. Such a slow recovery is inconsistent with the notion that market prices quickly reflect relevant information. (Reprinted by permission of the publisher.)

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