Dispersion of financial analysts forecasts of earnings per share and trading volume: the Hong Kong experience

Abstract The results of this study provide additional support for the trading volume theory that suggests that investor disagreement over the interpretation of information leads to increased trading. Based upon a sample of Hong Kong firms, the study is unique in terms of extending the empirical testing of trading volume theory to include a relatively small but highly volatile stock market with a reputation as a haven for speculators trading on rumors. The fraction of a firm's shares traded is found to be positively related to the dispersion of financial analysts' earnings forecasts. The finding suggests that the model in Ajinkya et al. (1991) [ The Accounting Review 66, 389–401] is robust as applied in an Asia-Pacific market and that there is a rational element to the Hong Kong market as well.