Alternative Liquidity Measures and Stock Returns

Brian D Kluger and Jens Stephan

Review of Quantitative Finance and Accounting, 1997, vol. 8, issue 1, 19-36

Abstract: This article compares the properties of several common liquidity measures including the bid-ask spread, the liquidity ratio and firm size. We also use the proportional hazard model to develop a new measure, the relative odds ratio, based on the volume necessary to move prices by a predetermined amount. Although each measure displays a liquidity premium, a composite measure better explains expected returns, suggesting that liquidity is a multidimensional phenomenon. Copyright 1997 by Kluwer Academic Publishers

Date: 1997
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