Date of Award

Winter 2007

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Program/Concentration

Business Administration-Finance

Committee Director

Mohammad Najand

Committee Member

Kenneth Yung

Committee Member

Vinod B. Agarwal

Abstract

This dissertation systematically investigate the lead-lag relations between the trading volume and stock return patterns in China A share and B share markets through two streams of behavioral postulations. In the first part, we summarize all the potential lead-lag patterns between trading volume and stock returns and link them to the corresponding behavioral explanations. In particular, Lee and Swaminathan's (2000) Momentum Life Cycle theory best explains the strong negative relations between lagged trading volume and subsequent return in China A share market. The strong positive relations between lagged market return and subsequent trading volume found in both China's B share markets best fit the expectations of Statman, Thorley, and Vorkink's (2006) overconfidence bias hypothesis, in which market investors are overly confident about the precision of their private information and such biased self-attribution causes the degree of confidence to increase when realized market returns are high, even when those returns are simultaneously enjoyed by the entire market.

The second part of this dissertation further investigate the relations between trading volume and profitability of contrarian/momentum strategies under the empirical framework of Lee and Swaminathan's (2000) Momentum Life Cycle; Daniel, Hirshleifer, and Subrahmanyam's (1998) overconfidence bias on glamour stocks; and Hong and Stein's (1999) public information diffusion effect. The results reconfirm that Lee and Swaminathan's (2000) Momentum Life Cycle hypothesis provides the best explanation not only on the strong negative lead-lag patterns between lagged trading volume and subsequent returns, but also on the profitability of momentum/contrarian strategies for winner/loser stocks with different levels of trading volumes in China A share market. In particular, late stage momentum performers, including high (low) volume winners (losers), will experience contrarian profits, whereas early stage momentum performers, including low (high) volume winners (losers), will experience momentum profits.

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DOI

10.25777/dt81-m192

ISBN

9780549329312

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