Financial constraints, stock liquidity, and stock returns

Xiafei Li and Di Luo

Journal of International Financial Markets, Institutions and Money, 2019, vol. 63, issue C

Abstract: This paper examines stock liquidity in explaining the mixed relations between financial constraints and stock returns and the pricing of stock liquidity across financially constrained and unconstrained firms. We find a negative relation in liquid portfolios and a positive relation in illiquid portfolios. Financially constrained firms have higher liquidity risk and earn a higher illiquidity premium than unconstrained firms. Financial constraints cannot be independently priced in stock returns and can only be priced in conjunction with stock liquidity in bad economic times. Stock liquidity is independently priced for financially constrained firms or in good times, but not for unconstrained firms.

Keywords: Asset pricing; Financial constraints; Stock liquidity; Macroeconomic conditions (search for similar items in EconPapers)
JEL-codes: G12 G14 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:63:y:2019:i:c:s1042443119301878

DOI: 10.1016/j.intfin.2019.101139

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