This paper finds that trading volume is a significant determinant of the le
ad-lag patterns observed in stock returns. Daily and weekly returns on high
volume port folios lead returns on low volume portfolios, controlling for
firm size. Nonsynchronous trading or low volume portfolio autocorrelations
cannot explain these findings. These patterns arise because returns on low
volume portfolios respond more slowly to information in market returns. The
speed of adjustment of individual stocks confirms these findings. Overall,
the results indicate that differential speed of adjustment to information
is a significant source of the cross-autocorrelation patterns in short-hori
zon stock returns.