Abstract: Inventory models posit that return autocorrelation is affected by collateral, volume, and expected volatility. We show that daily market autocorrelations are lower on negative return days, consistent with collateral concerns. Unlike previous literature, we document a strong role of volatility on autocorrelation. Puzzlingly, anticipated volume, not volume shocks, drive reversals. Sparked by these findings, we construct a liquidity risk factor in accordance with Pastor-Stambaugh (2003) that is volatility, not volume, based. The volatility-based factor is more robust and has a higher risk premium than the volume-based factor. (joint with Blake LeBaron and Jeffrey Pontiff)

bio: Vincent Bogousslavsky is an Assistant Professor of Finance at Boston College, Carroll School of Management. His research interests span asset pricing and market microstructure. His work has been published in the Journal of Finance, the Journal of Financial Economics, and the Journal of Financial Markets. He holds a Ph.D. in Finance from the Swiss Finance Institute at EPFL, Lausanne, Switzerland, and was a Visiting Assistant Professor at the University of Chicago, Booth School of Business, over 2021-22.

Zoom Meeting: https://us06web.zoom.us/j/82722427426?pwd=XMq67QNPAVxZVNIGc9r2RHi8D0fGYh.1

Meeting ID: 827 2242 7426

Passcode: 703754