Transitory prices, resiliency, and the cross-section of stock returns

Jinyong Kim and Yongsik Kim

International Review of Financial Analysis, 2019, vol. 63, issue C, 243-256

Abstract: This paper suggests a new measure of stock market resiliency and demonstrates that resiliency is a dimension of liquidity that generates cross-sectional variations in stock returns. Resiliency is defined as quickness of the transitory price recovery from a liquidity shock. Using the Beveridge-Nelson decomposition and the spectral analysis in the frequency domain, we measure resiliency as the speed of mean reversion of transitory price components. Our main finding is that a zero-investment portfolio long in low-resiliency stocks and short in high-resiliency stocks earns significant abnormal returns. We also find that our resiliency measure is complementary to existing liquidity measures.

Keywords: Resiliency; Liquidity; Transitory prices (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:63:y:2019:i:c:p:243-256

DOI: 10.1016/j.irfa.2018.11.009

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