Liquidity And Expected Returns
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Liquidity And Expected Returns
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Author : Geert Bekaert
language : en
Publisher:
Release Date : 2005
Liquidity And Expected Returns written by Geert Bekaert and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with International liquidity categories.
"Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the impact of liquidity on expected returns. Our main liquidity measure is a transformation of the proportion of zero daily firm returns, averaged over the month. We find that our liquidity measures significantly predict future returns, whereas alternative measures such as turnover do not. Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with contemporaneous return shocks and negatively correlated with shocks to the dividend yield. We consider a simple asset pricing model with liquidity and the market portfolio as risk factors and transaction costs that are proportional to liquidity. The model differentiates between integrated and segmented countries and periods. Our results suggest that local market liquidity is an important driver of expected returns in emerging markets, and that the liberalization process has not eliminated its impact"--National Bureau of Economic Research web.
Liquidity And Expected Returns
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Author : Geert Bekaert
language : en
Publisher:
Release Date : 2012
Liquidity And Expected Returns written by Geert Bekaert and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the impact of liquidity on expected returns. Our main liquidity measure is a transformation of the proportion of zero daily firm returns, averaged over the month. We find that our liquidity measures significantly predict future returns, whereas alternative measures such as turnover do not.Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with contemporaneous return shocks and negatively correlated with shocks to the dividend yield. We consider a simple asset pricing model with liquidity and the market portfolio as risk factors and transaction costs that are proportional to liquidity. The model differentiates between integrated and segmented countries and time periods. Our results suggest that local market liquidity is an important driver of expected returns in emerging markets, and that the liberalization process has not fully eliminated its impact.
The Volatility Of Liquidity And Expected Stock Returns
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Author : Ferhat Akbas
language : en
Publisher:
Release Date : 2013
The Volatility Of Liquidity And Expected Stock Returns written by Ferhat Akbas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
The pricing of total liquidity risk is studied in the cross-section of stock returns. The study suggests that there is a positive relation between total volatility of liquidity and expected returns. Our measure of liquidity is based on Amihud (2002) and its volatility is measured using daily data. Furthermore, we document that total volatility of liquidity is priced in the presence of systematic liquidity risk: the covariance of stock returns with aggregate liquidity, the covariance of stock liquidity with aggregate liquidity, and the covariance of stock liquidity with the market return. The separate pricing of total volatility of liquidity indicates that idiosyncratic liquidity risk is important in the cross section of returns. This result is puzzling in light of Acharya and Pedersen (2005) who develop a model in which only systematic liquidity risk affects returns. The positive correlation between the volatility of liquidity and expected returns suggests that risk averse investors require a risk premium for holding stocks that have high variation in liquidity. Higher variation in liquidity implies that a stock may become illiquid with higher probability at a time when it is traded. This is important for investors who face an immediate liquidity need and are not able to wait for periods of high liquidity to sell. The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/150946
Systematic Liquidity And Expected Returns
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Author : Evangelos Giouvris
language : en
Publisher:
Release Date : 2003
Systematic Liquidity And Expected Returns written by Evangelos Giouvris and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.
Amihud amp; Mendelson (1986), Eleswarapu amp; Reinganum (1993), Brennan amp; Subrahmanyam (1996), Datar et al (1998) and Amihud (2002) have argued that predictable differences in liquidity lead to cross-sectional differences in expected returns. A natural extension of this argument is that if liquidity is random and covaries across stocks as documented by Chordia et al (2000) and Huberman amp; Halka (2001) then a stock's sensitivity to systematic liquidity randomness could potentially play the role of a priced risk factor. Decline in systematic liquidity has been blamed for the crash of October 1987 and the global bond market liquidity crisis the summer of 1998. This study aspires to cover the absence of research in the area of systematic liquidity and its effect on expected returns under normal trading conditions for the UK market employing FTSE100 as its sample. I use daily data from October 1996 to May 2001 incorporating four different trading/price reporting regimes and find that i) liquidity proxied by absolute and proportional bid-ask spread has decreased over the years despite attempts of the London Stock Exchange to make the UK market a more competitive market ii) absolute and proportional spread exhibit a systematic time-varying component even after controlling for a number of variables known to affect spread and iii) systematic liquidity appears to have an important role on stock pricing before the introduction of SETS (order-driven stock exchange electronic trading service) but reduces for the rest of the periods/trading regimes examined. To sum up the role of commonality in liquidity is quite important under normal trading conditions and inventors require compensation for shocks in systematic liquidity.
Liquidity And Expected Returns In A Multi Factor Asset Pricing Model
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Author : Jan Schneider
language : en
Publisher:
Release Date : 2010
Liquidity And Expected Returns In A Multi Factor Asset Pricing Model written by Jan Schneider and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Several empirical studies find that illiquid firms have higher expected returns than liquid firms. I argue that this result is a puzzle that has not been resolved yet. The liquidity premium is puzzling since investors can circumvent low liquidity by trading diversified funds of illiquid firms. I develop a model that shows how a combination of cross-sectional differences in liquidity and short sale constraints generates a risk premium for illiquid firms despite the ability of investors to trade illiquid firms in large liquid baskets.
Characteristic Liquidity Systematic Liquidity And Expected Returns
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Author : Reza Bradrania
language : en
Publisher:
Release Date : 2014
Characteristic Liquidity Systematic Liquidity And Expected Returns written by Reza Bradrania and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
We investigate whether the effect of liquidity on equity returns can be attributed to the liquidity level, as a stock characteristic, or a market wide systematic liquidity risk. We develop a CAPM liquidity-augmented risk model and test the characteristic hypothesis against the systematic risk hypothesis for the liquidity effect. We find that the two-factor systematic risk model explains the liquidity premium, and the null hypothesis that the liquidity characteristic is compensated irrespective of liquidity risk loadings is rejected. This result is robust over 1931-2008 data and sub-samples of pre-1963 and post-1963 data both in the time-series and the cross-sectional analysis.
Liquidity Risk And Expected Stock Returns
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Author : Ľuboš Pástor
language : en
Publisher:
Release Date : 2001
Liquidity Risk And Expected Stock Returns written by Ľuboš Pástor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Corporations categories.
This study investigates whether market-wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34-year period, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors.
Idiosyncratic Volatility Momentum Liquidity And Expected Stock Returns In Developed And Emerging Markets
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Author : Lorne N. Switzer
language : en
Publisher:
Release Date : 2015
Idiosyncratic Volatility Momentum Liquidity And Expected Stock Returns In Developed And Emerging Markets written by Lorne N. Switzer and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three-factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month's idiosyncratic volatility to the subsequent month's stock returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. Using a five-factor model, the results suggest that idiosyncratic risk does not play a role on stock returns for most of the developed markets analyzed. In contrast, the paper shows, for the first time, that idiosyncratic risk is positively related to month-ahead expected returns for many emerging markets for this model.
Liquidity And Asset Prices
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Author : Yakov Amihud
language : en
Publisher: Now Publishers Inc
Release Date : 2006
Liquidity And Asset Prices written by Yakov Amihud and has been published by Now Publishers Inc this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Business & Economics categories.
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Liquidity Risk And Expected Stock Returns
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Author : Lubos Pastor
language : en
Publisher:
Release Date : 2011
Liquidity Risk And Expected Stock Returns written by Lubos Pastor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
This study investigates whether market-wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34-year period, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors.