Liquidity risk in stock returns: An event-study perspective

Charles Cao and Lubomir Petrasek

Journal of Banking & Finance, 2014, vol. 45, issue C, 72-83

Abstract: We examine in an event-study context what factors affect the relative performance of stocks during liquidity crises. We find that market risk, measured by the market beta, is not a good measure of expected abnormal stock returns on days with liquidity crises. Instead, abnormal stock returns during liquidity crises are strongly negatively related to liquidity risk, measured by the co-movement of stock returns with market liquidity. The degree of informational asymmetry and the ownership structure of the firm also help to explain abnormal stock returns on crisis days. Our findings have important implications for managing the liquidity risk of equity portfolios.

Keywords: Financial crises; Liquidity risk; Asymmetric information; Institutional investors (search for similar items in EconPapers)
JEL-codes: G01 G14 G20 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426613003889
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:45:y:2014:i:c:p:72-83

DOI: 10.1016/j.jbankfin.2013.09.020

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().