Why is the Amihud (2002) measure priced in Taiwan: Illiquidity or mispricing?

Chaonan Lin, Kuan-Cheng Ko and Chien-Lin Lu

Pacific-Basin Finance Journal, 2023, vol. 79, issue C

Abstract: Lou and Shu (2017) decompose the Amihud (2002) measure and show that its pricing ability is attributed to the trading volume component. Amihud and Noh (2021) claim that Lou and Shu's (2017) decomposition misses a component that is related to illiquidity, and that this illiquidity component affects stock returns significantly. This study extends Amihud and Noh's (2021) analyses to the Taiwan stock market by proposing that the imposition of price limits enhances the pricing ability of trading volume component of the Amihud (2002) measure. Our empirical results confirm this prediction, and further, indicate that the illiquidity component provides no pricing ability in Taiwan.

Keywords: Illiquidity; Mispricing; Cross-section of stock returns; Taiwan stock market (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000501

DOI: 10.1016/j.pacfin.2023.101984

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