Illiquidity and Stock Returns

Robert M. Mooradian

Review of Applied Economics, 2010, vol. 06, issue 01-2, 19

Abstract: A quarterly time series of the aggregate commission rate of NYSE trading for the period 1980-2003 is developed. The aggregate commission rate is of significant size, captures trading cost, and reflects market illiquidity. Consistent with financial theory, I find a positive relation between market returns and the aggregate commission rate. The impact of the aggregate commission rate on market returns survives a number of robustness checks and is significant after controlling for interest-rate factors, trading volume, and the variability of trading volume. Overall, the findings suggest that market-wide liquidity is a state variable important for asset pricing.

Keywords: Financial Economics; International Relations/Trade; Marketing; Research Methods/Statistical Methods (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ags:reapec:143268

DOI: 10.22004/ag.econ.143268

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