Liquidity in asset pricing: New Australian evidence using low-frequency data

Daniel Chai, Robert Faff and Philip Gharghori
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Daniel Chai: Department of Accounting and Finance, Monash University, Australia

Australian Journal of Management, 2013, vol. 38, issue 2, 375-400

Abstract: Employing a new proxy for liquidity, this paper examines its impact on stock returns in the context of the Fama-French framework. We augment the Carhart four-factor model with a liquidity factor in our asset pricing tests. Using an extensive dataset drawn from the Australian equities market, we find that liquidity explains a portion of the common variation in stock returns even after controlling for size, book-to-market and momentum. However, our findings suggest that the liquidity factor only adds marginal explanatory power to contemporary asset pricing models.

Keywords: Asset pricing; Australian evidence; Fama-French model; liquidity (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:38:y:2013:i:2:p:375-400

DOI: 10.1177/0312896213489143

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