Liquidity and stock returns: Evidence from international markets

Thomas C. Chiang and Dazhi Zheng

Global Finance Journal, 2015, vol. 27, issue C, 73-97

Abstract: This paper tests the relation between expected excess stock returns and illiquidity risk in G7 markets. By conducting panel regressions on monthly data for 20years, evidence shows that excess stock returns of the G7 countries are positively correlated with market illiquidity risk, but are negatively correlated with the innovation of firm-level illiquidity. Applying the model to the portfolio analysis, the evidence shows that the market-level illiquidity risk has a more profound effect on excess stock returns for large stocks, growth stocks, more liquid stocks, lower idiosyncratic risk stocks, and lower skewness stocks. However, the innovation from firm-level illiquidity has a stronger effect on small stocks, value stocks, more illiquid stocks, higher idiosyncratic risk stocks, lower skewness stocks, and lower kurtosis stocks.

Keywords: Asset pricing; Liquidity; Fama–French three-factor model; International stock market (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028315000265
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:27:y:2015:i:c:p:73-97

DOI: 10.1016/j.gfj.2015.04.005

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().