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Panagiotis Artikis ()

Journal of Financial Management, Markets and Institutions (JFMMI), 2018, vol. 06, issue 02, 1-24

Abstract: This study examines whether there is a strong relationship between stock liquidity, which proxies for the implicit cost of trading shares, and future stock returns in an asset-pricing context in the UK stock market. The time period, 1994–2016, includes the most recent global financial crisis that drained liquidity from financial markets worldwide. Four different measures of stock liquidity are employed; the empirical findings indicate that liquidity is a systematic pricing factor and explains a significant portion of the variation in stock returns, even after the inclusion of the other traditional risk factors. The results are robust to both forms of liquidity, either as a residual effect or in its original form as a separate risk factor. Finally, for the first time quantile regression is applied, showing that the liquidity risk factor (LIQ) absorbs a significant portion of the information content of the size and value factors, while remaining independent of the momentum factor.

Keywords: Liquidity measures; liquidity risk; UK stock exchange; asset pricing; factor model; quantile regression (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2282717X18500081

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Journal of Financial Management, Markets and Institutions (JFMMI) is currently edited by Santiago Carbo-Valverde

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