seminar participants at the Wharton School and at the 1998 conference in "Accounting and Finance in Tel-Aviv" for their comments and suggestions. All remaining errors are the authors' responsibility. AbstractThe idea that extreme trading activity (as measured by trading volume) contains information about the future evolution of stock prices is investigated. We find that stocks experiencing unusually high (low) trading volume over a period of one day to a week tend to appreciate (depreciate) over the course of the following month. This effect is consistent across firm sizes, portfolio formation strategies, and volume measures. Surprisingly, the effect is even stronger when the unusually high or low trading activity is not accompanied by extreme returns, and appears to be permanent.The significantly positive returns of our volume-based strategies are not due to compensation for excessive risk taking, nor are they due to firm announcement effects. Previous studies have documented the positive contemporaneous correlation between a stock's trading volume and its return, and the autocorrelation in returns. The high volume return premium that we document in this paper is not an artifact of these results. Finally, we also show that profitable trading strategies can be implemented to take advantage of the information contained in trading volume.