perspective. Stocks with higher turnover can be traded more easily and
hence should have lower transactions costs. Also, analysts following and
institutional ownership are larger for high turnover stocks than for low
turnover stocks, and hence we would expect investors to be less overconfi-
dent for these stocks.
One potential explanation for their findings may be that there are larger
differences of opinion about higher turnover stocks, and larger differences
of opinion may arise from difficulties in evaluating the fundamental values
of these stocks. Hence, the Daniel and Titman explanation for why growth
stocks exhibit greater momentum may also apply to high-turnover stocks.
Another explanation is that turnover is related to the amount of attention
that a stock attracts. Therefore, high-turnover stocks may be more exposed
to positive feedback trading strategies proposed by Delong, Shleifer, Sum-
mers, and Waldman (1990).
The evidence that we review in this section indicates that momentum prof-
its are larger for low analyst coverage stocks than for high analyst coverage
stocks, larger for growth stocks than for value stocks, and larger for high-
turnover stocks than for low-turnover stocks. The behavioral models provide
MOMENTUM 377Table 10.9
Monthly Returns for Portfolios Based on Price Momentum and Trading VolumeThis table presents average monthly returns from portfolio strategies based on an
independent two-way sort based on past returns and past average daily turnover for
the 1964 to 1995 time period. At the beginning of each month all available stocks
in the NYSE/AMEX are sorted independently based on past 6 month returns and
divided into 10 portfolios. R1 represents the loserportfolio and R10 represents the
winnerportfolio. The stocks are then independently sorted based on average daily
volume over the past 6 months and divided into three portfolios, where turnover is
used as a proxy of trading volume. V1 represents the lowest trading volume portfolio
and V3 represents the highest trading volume portfolio. The stocks at the intersection
of the two sorts are grouped together to form portfolios based on past returns and
past trading volume. Monthly returns are computed as an equal-weighted average of
returns from strategies initiated at the beginning of this month and past months. The
numbers in parentheses are simple t-statistics.
V1 V2 V3 V3 −V1R1 1.12 0.67 0.09 −1.04
(2.74) (1.61) (0.20) (−5.19)
R10 1.67 1.78 1.55 −0.12
(5.30) (5.41) (4.16) (−0.67)
R10 −R1 0.54 1.11 1.46 0.91
(2.07) (4.46) (5.93) (4.61)
Source: Lee and Swaminathan (2000).