Past trading volume predicts both the magnitude and persistence of future price momentum. In the intermediate-term, a strategy of buying past high-volume winners and selling past high-volume losers outperforms a similar strategy based on price momentum alone by 2% to 7% per year. In the long-term, a strategy of buying low-volume winners and selling high-volume losers exhibits return continuation up to three years, while a strategy of buying high-volume winners and selling low-volume losers exhibits return reversals in years two and three. These findings are consistent with behavioral models in which stock prices initially underreact, but ultimately overreact, to fundamental news. In this context, past trading volume provides information about the level of investor interest, and indirectly, about the imminence of price reversals.

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