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Int. J. Financial Stud. 2017, 5(4), 20;

The Effect of Stock Return Sequences on Trading Volumes

Economics and Management Department, The Max Stern Yezreel Valley College, P.O. Emek Yezreel, Jezreel Valley 1930000, Israel
Academic Editor: Pascal Stiefenhofer
Received: 24 August 2017 / Revised: 22 September 2017 / Accepted: 27 September 2017 / Published: 1 October 2017
(This article belongs to the Special Issue Financial Economics)
Full-Text   |   PDF [249 KB, uploaded 1 October 2017]


The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price “has” to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock’s price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments. View Full-Text
Keywords: gambler’s fallacy; investment decisions; stock return sequences; trading volumes gambler’s fallacy; investment decisions; stock return sequences; trading volumes
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Kudryavtsev, A. The Effect of Stock Return Sequences on Trading Volumes. Int. J. Financial Stud. 2017, 5, 20.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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