Disentangling the relationship between liquidity and returns in Latin America

Joseph French and Rodrigo Taborda

No 15606, Documentos CEDE from Universidad de los Andes, Facultad de Economía, 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: F30 G01 G02 G15 (search for similar items in EconPapers)
Pages: 31
Date: 2017-05-02
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https://repositorio.uniandes.edu.co/bitstream/handle/1992/8719/dcede2017-32.pdf

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

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