Abstract
This study shows that abnormal trading volume around a stock’s earnings announcement—after controlling for its information content—varies as a function of the number of, and the intraday price movements associated with other earnings announcements on the same day. This variation cannot be explained within the context of the existing theoretical framework for trading volume, which only considers fundamental investors and noise/liquidity traders who focus on individual securities. Instead, we argue that this variation is explained by short-term speculators, who trade very heavily every day around information events to try and profit from associated price movements, but who are constrained in their aggregate, daily trading activity. This study therefore (1) expands the existing theoretical framework for trading volume to include short-term speculators, (2) describes their trading behavior, and (3) shows furthermore that abnormal volume cannot be used as a proxy for information content without controlling for the presence of these market participants.