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Disentangling the relationship between liquidity and returns in Latin America

Joseph French () and Rodrigo Taborda ()

Documentos CEDE from Universidad de los Andes - CEDE

Abstract: We dissect the impact of liquidity on returns of Latin American firms using a detailed data set of firm characteristics over various market cycles. We find that firm-level liquidity (illiquidity) is positively (negatively) associated with returns. Further analysis reveals that global illiquidity and endogenously determined crisis periods are negatively associated with returns. Our results are in contrast to the majority of the literature on developed markets and indicate that liquidity is less of an important risk factor in Latin America. Our results suggest that improvements in firm-level liquidity will enhance returns and reduce the vulnerability of returns to global illiquidity.

Keywords: Liquidity; Illiquidity; Latin America; VIX; Financial Crisis (search for similar items in EconPapers)
JEL-codes: G01 G15 G02 F30 (search for similar items in EconPapers)
Date: 2017-05-02
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http://economia.uniandes.edu.co/publicaciones/dcede2017-32.pdf

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Journal Article: Disentangling the relationship between liquidity and returns in Latin America (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:015606

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