Economics at your fingertips  

Liquidity shock and stock returns in the Japanese equity market

Yasuhiro Iwanaga and Takehide Hirose

Pacific-Basin Finance Journal, 2022, vol. 75, issue C

Abstract: We investigate the relationship between liquidity shocks and stock returns in the Japanese equity market. As in the US equity market, we observe an irrational phenomenon: Stocks with positive liquidity shocks have higher future returns than stocks with negative liquidity shocks. This phenomenon may be caused by an underreaction to liquidity shocks. We show that illiquidity strongly contributes to this underreaction, unlike the US equity market. Additionally, we uncover new facts that were not previously known. We show that liquidity shocks caused by bad news is more quickly priced than those caused by good news. We also find that pricing on liquidity shocks in the cross-section may be affected by time-varying market liquidity shocks.

Keywords: Liquidity shock; Stock market reactions; Underreaction; Japan (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
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:

DOI: 10.1016/j.pacfin.2022.101849

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-11-11
Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001445