Free float and market liquidity around the world

Ding, Xiaoya (Sara), Yang Ni and Ligang Zhong

Journal of Empirical Finance, 2016, vol. 38, issue PA, 236-257

Abstract: We investigate the relationship between free float and stock market liquidity using a sample covering 55 countries from 2003 to 2011. We find that stocks with higher free float have a higher level of liquidity. The relationship between free float and liquidity is evident in all regions regardless of the degree of economic development or geographic location and is more pronounced when the legal structure and corporate governance environment are strong. We present evidence that free float can mitigate liquidity dry-ups when there are large shocks to market liquidity, such as during the recent financial crisis. Finally, our study finds that higher free float is associated with lower liquidity risk. The paper suggests that liquidity can be a significant channel through which free float may affect stocks' expected returns.

Keywords: Free float; Liquidity; Liquidity risk; Strategic shareholder; Financial crisis (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:38:y:2016:i:pa:p:236-257

DOI: 10.1016/j.jempfin.2016.07.002

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