Stocks with the highest same-day volume shocks (open-to-close volume vs. 60-day half-life EMA) had higher subsequent overnight returns, but not next-day returns: 71% equal-weighted vs 17% value-weighted gross annualized (2000–2022; gross of costs; out-of-sample 2016–2022).
What are the implications of stock trading volume spikes for near-term returns? In their February 2025 paper entitled "Volume Shocks and Overnight Returns", Álvaro Cartea, Mihai Cucuringu, Qi Jin and Mungo Wilson study the effects of stock trading volume shocks during normal trading hours on subsequent overnight and next-day returns. For each stock each day, they identify volume shocks as unusually high or low values of daily volume during normal hours (open-to-close) divided by the exponential moving average of daily volume with 60-day half-life, minus one. They then sort stocks by this metric into fifths, or quintiles, and calculate subsequent overnight (close-to-open) and next-day (open-to-close) gross annualized returns and Sharpe ratios for equal-weighted or value-weighted quintile portfolios. To ensure exploitability, they then employ five linear and machine learning models (trained on data through 2015) to forecast volume shocks and construct long-only portfolios to capture the overnight returns associated with prior-day volume spikes. Using daily trading volume and trading day/overnight price data for all NYSE/AMEX/NASDAQ common stocks during January 2000 through December 2022, they find that:
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