An Investigation of the Effect of Speculative Trading on Stock Returns in the U.S. Equity Market
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Bachelor's thesis
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Date
2023
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Mcode
Degree programme
Rahoitus
Language
en
Pages
30 + 8
Series
Abstract
This study examines the effect of speculative trading on stock returns in the U.S. markets using data from the period 2005-2022. Following Pan et al. (2016), I use abnormal turnover ratio (ATR) as a proxy for speculative trading. I find that ATR is unable to adequately capture speculation in the U.S. and does not predict future stock returns. The pricing effect of ATR remains insignificant even after controlling for short-sale constraints. Interestingly, I find a positive relationship between ATR and future stock returns for small stocks. While ATR does not predict returns of value-weighted portfolios, the average monthly difference in equal-weighted returns of the highest and lowest ATR portfolios is 0.59%, which is statistically significant. This spread remains significant after controlling for the January effect.Description
Thesis advisor
Lof, MatthijsKeywords
speculative trading, stock returns, U.S. market, asset pricing