Q2. What future works have the authors mentioned in the paper "The high volume return premium" ?
Also, given that trading volume is determined endogenously, it appears that good ( bad ) information about the future prospects of a firm tends to be associated with higher ( lower ) volume. However, the 29 construction of a model that reconciles all the empirical facts documented in this paper represents a challenge for future research. This would imply that investors have asymmetric reactions to good versus bad news, as suggested by the short-sale constraint model by Diamond and Verrecchia ( 1987 ). From these simulated series of TFG ’ s and TGF ’ s, the authors can finally estimate Ad, so that ( A. 1 ) is satisfied empirically.
Q3. What is the effect of the lack of trading activity in the model?
Since information-based trading is more likely to take place when an information event has occurred, the lack of trading activity in their model tends to be associated with low asymmetric information between market participants.
Q4. Why is the aggregation of the reference return portfolios taken over both trading intervals?
Because the $1 investment is made per stock in each trading interval, the aggregation for the reference return portfolios is taken over both trading intervals and stocks.
Q5. How many days do the positive returns of the strategies die out after the first week?
In fact, the positive returns generated by their strategies not only die out after the first week, but tend to revert back to zero over the following three weeks, as opposed to their strategies which generate positive returns for up to 100 trading days (20 weeks).
Q6. What is the TAQ sample used for this analysis?
Since the Lee and Ready (1991) algorithm requires a transaction by transaction account of the trading activity, the authors use the TAQ sample introduced in section 6.4 to perform this analysis.
Q7. How many days are used to measure the returns of a stock?
To do this, the authors use the twenty trading days (i.e. about a month) following the formation period of each trading interval to measure the returns following formation periods with large or small trading volume.
Q8. What is the effect of the potential bias on the returns of long positions?
52As this potential bias accentuates the returns generated from long positions with high volume stocks, but attenuates the returns from short positions with low volume stocks, it is not clear whether their strategies benefit from or are hurt by it.
Q9. What does the analysis tell us about the risk of asymmetric stocks?
Looking at the intertemporal effects of unusual volume on spreads will therefore tell us about the information asymmetry risk in stock prices.
Q10. What is the test that is the extension of the Pearson’s goodness of fit test?
Ad ≤ TGF , so the authors can reject null hypothesis in favor of the alternative that F first-order stochastically dominates G.Test #2This test follows the procedure developed by Anderson (1996), and is an extension of the Pearson’s goodness of fit test.
Q11. How many days of the reference period will be given a relative weight?
As this is done progressively through the reference period, this means that the t-th day of the reference period will be given a relative weight of wt(n) = 1 + ( n−1 48 ) (t− 1).
Q12. What is the difference between the two components of the zero investment portfolios?
unlike the components of the reference return portfolios, the components of the zero investment portfolios require a non-zero investment, and therefore should be more appropriately compared to the average returns of normal volume stocks in order to measure the excess return that they are generating.