The real side of the high-volume return premium

Prior literature demonstrates that an increased trading activity of a fi rm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and fi nancing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high fi nancial constraints and fi rms with lower levels of investor recognition