"Gone Fishin': Seasonality in Trading Activity and Asset Prices"
©
Journal of Financial Markets,
November
2009
Volume: 12
|
Issue: 4
|
Pages: 672-702
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy, Capital Markets and Investments
Abstract
We use seasonality in stock trading activity associated with summer vacation as a source of exogenous variation to study the relationship between trading volume and expected return. Using data from 51 stock markets, we first confirm a widely held belief that stock turnover is significantly lower during the summer because market participants are on vacation. Interestingly, we find that mean stock return is also lower during the summer for countries with significant declines in trading activity. This relationship is not due to time-varying volatility. Moreover, both large and small investors trade less and the price of trading (bid-ask spread) is higher during the summer. These findings suggest that heterogeneous agent models are essential for a complete understanding of asset prices.
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