The Effect of Size and Turnover Volume on Cross-Autocorrelation of Equity Returns

In this paper, we use size-volume and volume-size sorted portfolios of NYSE and AMEX firms to investigate cross-autocorrelations in equity returns. We find that after controlling for firm size, returns on high turnover volume portfolios lead returns on low turnover volume portfolios. We also find that after controlling for turnover volume, returns on large firms lead returns on small firms. Our results indicate that the size or volume lead lag relationships found in other studies are the product of the study design and in particular the sorting order used. Additionally, we find that contemporaneous movements in the equity markets and own autocorrelations do not spuriously cause the well-documented cross autocorrelations in portfolio returns