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Abstract I show that increased turnover accompanies changes in stocks’ risk exposures. A one standard deviation decrease in a stock’s market beta increases turnover as much as 25%. The sensitivity of turnover to beta changes has grown over time. Market beta changes explain as much as 5% of the monthly cross-sectional variation in turnover. VAR decompositions of returns show turnover is more strongly associated with discount rate news than cash flow news. This mechanism provides a new channel for turnover combined with realized returns to predict long horizon returns and cash flow changes. Further, this mechanism can amplify many prior explored motives for trade.
Christopher M. Hrdlicka (Thu,) studied this question.