Sources and Nonlinearity of High Volume Return Premium: An Empirical Study on the Differential Effects of Investor Identity versus Trading Intensity (2020-2024)
By: Sungwoo Kang
Potential Business Impact:
Helps predict stock prices by watching how investors trade.
This study demonstrates that both investor identity and trading intensity determine the High Volume Return Premium, but intensity effects only emerge when measured correctly. Using Korean market data (2020-2024), we show that institutional buying intensity normalized by market capitalization reveals a perfect monotonic relationship with future returns (Q4: +10.07\%; Q1: -0.05\%), while trading value normalization fails. Retail investors exhibit an inverted pattern, confirming noise trader behavior. This reconciles decades of conflicting evidence: intensity matters profoundly, but requires (1) investor-type conditioning, (2) nonlinear quartile analysis, and (3) conviction-based (market cap) rather than participation-based (trading value) measurement.
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