Liquidity issues surrounding neglected firms

William J. Bertin, David Michayluk () and Laurie Prather
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William J. Bertin: Bond University
Laurie Prather: Bond University

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: The neglected firm effect is the phenomenon where stocks of less widely-known firms have larger returns than that predicted by asset pricing models. Researchers have found mitigating variables, such as the price of the stock, that have partially explained the performance of neglected firms. Neglect and price may be proxies for the liquidity of each firm’s stock, and the higher observed returns may actually be a premium for the lack of liquidity. This paper compares two definitions of neglect and their relationship with liquidity. When neglect is measured by the number of analysts following a stock, more analysts are associated with higher liquidity for the stock. An even stronger relationship is observed when the proxy for neglect is widely disseminated earnings announcements. These results are confirmed in regression analyses that control for the stock price.

Keywords: neglected firm; market microstructure; earnings announcements; analyst following (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2008-01-01
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Citations: View citations in EconPapers (2)

Published as: Bertin, W., Michayluk, D. and Prather, L., 2008, "Liquidity issues surrounding neglected firms", Investment Management and Financial Innovations, 5(1), 57-65.

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Persistent link: https://EconPapers.repec.org/RePEc:uts:ppaper:2008-2

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