Liquidity risk and stock returns around the world

Samuel Xin Liang and John K.C. Wei

Journal of Banking & Finance, 2012, vol. 36, issue 12, 3274-3288

Abstract: The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there are less insider trading activities. We also discover that global liquidity risk is a significant pricing factor across all developed country market portfolios after controlling for global market, value, and size factors. The contribution of this risk to the return on a country market portfolio is economically and statistically significant within and across regions.

Keywords: Liquidity risk; Risk premium; International markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:12:p:3274-3288

DOI: 10.1016/j.jbankfin.2012.07.021

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