 Price delay premium and liquidity riskJi-Chai Lin, Ajai K. Singh, Sun, Ping-Wen (Steven) and Wen Yu Journal of Financial Markets, 2014, vol. 17, issue C, 150-173 Abstract: Hou and Moskowitz (2005) document that common stocks with more price delay in reflecting information yield higher returns and that the delay premium cannot be explained by the CAPM, Fama-French three-factor model, or Carhart's four-factor model. It cannot be explained by conventional liquidity measures either. They contend that the premium is attributable to inadequate risk sharing arising from lack of investor recognition, as Merton (1987) suggests. Using a parsimonious and powerful asset pricing model developed by Liu (2006), we re-examine the issue and find that firms with greater price delay have more difficulty attracting traders (higher incidents of non-trading) and their investors face higher liquidity risk, which accounts for their anomalous returns. Our findings suggest that the price delay premium is due to systematic liquidity risk, not inadequate risk sharing. Keywords: Liquidity risk; Price delay premium; Investor recognition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:17:y:2014:i:c:p:150-173 DOI: 10.1016/j.finmar.2012.12.001 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 |
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