Liquidity and Return Relationships in an Emerging Market

Jonathan Batten and Xuan Vinh Vo

Emerging Markets Finance and Trade, 2014, vol. 50, issue 1, 5-21

Abstract: In this paper, we investigate the relationship between liquidity and stock returns in the Vietnam stock market during the global financial crisis. Vietnam is one of a new group of frontier emerging markets referred to as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). We use a rich and detailed data set of firm characteristics to identify a positive relationship between liquidity and stock returns. This contradicts the negative correlation typically found in stock returns in developed markets. Our results support the proposition that when a market is not fully integrated with the global economy, a lack of liquidity will be a less important risk factor. Our findings contribute to those studies that highlight the diversification benefits from including frontier markets, which have a lower degree of integration with the global economy, in international portfolios.

Keywords: emerging markets; financial crisis; liquidity; stock returns (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (31)

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