Disentangling the relationship between liquidity and returns in Latin America

Joseph French and Rodrigo Taborda

Global Finance Journal, 2018, vol. 36, issue C, 23-40

Abstract: We dissect the impact of liquidity on returns of firms in Brazil, Chile, Colombia, Mexico, and Peru, using a detailed data set of firm characteristics over various market cycles. We find that firm-level liquidity (illiquidity) is positively (negatively) associated with returns, and that global illiquidity and endogenously determined crisis periods are negatively associated with returns. In contrast to the majority of the literature on developed markets, our results indicate that liquidity is a less important risk factor in Latin America. Our findings suggest that improvements in firm-level liquidity will enhance returns and reduce the vulnerability of returns to global illiquidity.

Keywords: Liquidity; Illiquidity; Latin America; VIX; Financial crisis (search for similar items in EconPapers)
JEL-codes: F30 G01 G02 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Disentangling the relationship between liquidity and returns in Latin America (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:36:y:2018:i:c:p:23-40

DOI: 10.1016/j.gfj.2017.10.006

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