Product market power and stock market liquidity

Jayant R. Kale and Yee Cheng Loon

Journal of Financial Markets, 2011, vol. 14, issue 2, 376-410

Abstract: Theory predicts that since a firm with market power has more stable cash flows because of its ability to set prices in the product market, its stock price is less sensitive to order flow (Peress, 2010), which results in greater stock liquidity. We test this prediction on a large sample of firms and find that stock liquidity increases with market power because market power reduces return volatility. Further, consistent with theoretical predictions, the impact of market power on liquidity is more pronounced when information asymmetry is more severe, that is, for smaller firms and for firms with less analyst coverage. Our findings are robust to different measures of liquidity, market power, volatility, and alternative econometric model specifications.

Keywords: Product; market; Market; power; Liquidity; Asymmetric; information (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386-4181(10)00040-6
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:finmar:v:14:y:2011:i:2:p:376-410

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().