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Systematic liquidity in the long run

Charly Sujoto, Petko Kalev and Robert Faff

Applied Financial Economics Letters, 2008, vol. 4, issue 3, 187-191

Abstract: In this article we develop a long-run systematic liquidity measure by augmenting the standard model with a lagged dependent variable. Our empirical application involves a large sample of Australian equities and we find pervasive evidence of long-run commonality in liquidity. We also find evidence of a mean reversion tendency for time-varying liquidity beta. This result implies that the liquidity movement in the stock market maybe more influenced by noise traders' activity rather than informed traders' activity.

Date: 2008
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