Dynamic Return-Volume Relation and Future Returns - Implication for Reducing Investing Risk

Trading volume is not only common market statistics and liquidity indicator, but also full of information. To reduce the risk, investors are used to predicting stock prices by observing trading volume and stock prices together and by analyzing returns and unusual high or low level of volume to signal return-pattern reversed or continued. This paper examines the dynamic return-volume relation to help investors make investment decisions and to reduce risk they will face. First, we find the dynamic return-volume has predictability to future returns in the market index. Second, returns accompanied unusual high or low level of volume have explaining ability to future returns.