Predictable liquidity properties in a Segmented, inelastic stock market

Haim Kedar-Levy, Joon-Seok Kim and Sean Sehyun Yoo

Journal of International Financial Markets, Institutions and Money, 2025, vol. 103, issue C

Abstract: We explore the predictive capability of two investment strategies on idiosyncratic volatility, liquidity risk and liquidity commonality, by investor type. Investors are characterized as positive-feedback or contrarian once their trades are significantly associated with daily stock returns on a given month. We find that this classification has predictive power: positive-feedback traders (mainly foreign investors) tend to increase, while contrarian traders (mainly local individuals) tend to reduce, the following month’s volatility and liquidity. Different investor clienteles segment the market by stock characteristics, questioning linear cross-sectional pricing. Controlling for supply inelasticity we find that share issuance/buyback datapoints tilt some of the statistics and blur the findings.

Keywords: Inelastic market; Investment strategy; Predictability; Market segmentation; Clientele (search for similar items in EconPapers)
JEL-codes: G11 G12 G20 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:103:y:2025:i:c:s104244312500071x

DOI: 10.1016/j.intfin.2025.102181

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