Sell-order liquidity and the cross-section of expected stock returns

Michael Brennan, Tarun Chordia, Avanidhar Subrahmanyam and Qing Tong

Journal of Financial Economics, 2012, vol. 105, issue 3, 523-541

Abstract: We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility.

Keywords: Liquidity; Asset pricing (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:105:y:2012:i:3:p:523-541

DOI: 10.1016/j.jfineco.2012.04.006

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