The effect of corporate investment on market frictions: implication for the stock price delay premium

Moonsoo Kang ()

Applied Economics Letters, 2024, vol. 31, issue 10, 940-947

Abstract: We demonstrate the effect of corporate investment on market frictions by exploring the stock liquidity channel. Using the stock price delay premium as a proxy for market frictions, we find that higher corporate investment leads to lower premium for stocks whose price responds slowly to information. Moreover, this cross-sectional phenomenon is more pronounced during the low sentiment/liquidity period, which experiences lack of liquidity. We obtain qualitatively the same results in a battery of robustness checks. Overall, this study suggests that corporate investment alleviates market frictions by altering stock liquidity.

Date: 2024
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DOI: 10.1080/13504851.2022.2156466

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