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Firm size, ownership structure, and systematic liquidity risk: The case of an emerging market

Ahmet Sensoy

Journal of Financial Stability, 2017, vol. 31, issue C, 62-80

Abstract: Previous studies support the hypothesis that institutional ownership leads to an enhanced systematic liquidity risk by increasing the commonality in liquidity. By using a proprietary database of all incoming orders and ownership structure in an emerging stock market, we show that institutional ownership leads to an increase in commonality in liquidity for mid- to-large cap firms; however, only individual ownership can lead to such an increase for small cap firms, revealing a new source of systematic liquidity risk for a specific group of firms. We also reveal that commonality decreases with the increasing number of investors (for both individual and institutional) at any firm size level; suggesting that as the investor base gets larger, views of market participants become more heterogeneous, which provides an alternative way to decrease the systematic liquidity risk.

Keywords: Commonality in liquidity; Systematic liquidity risk; Order book; Firm size; Ownership structure (search for similar items in EconPapers)
JEL-codes: D23 D82 G12 G14 G23 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.jfs.2017.06.007

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