{"title":"Liquidity and Liquidity Risk in the Cross-Section of Stock Returns","authors":"Volodymyr Vovchak","doi":"10.2139/ssrn.2078295","DOIUrl":null,"url":null,"abstract":"This paper examines the relative importance of liquidity level and liquidity risk for the cross-section of stock returns. A portfolio analysis is implemented to make inferences about the pricing ability of liquidity as a characteristic or as a risk. I find that the ratio of absolute returns-to-volume, the Amihud liquidity measure, is able to explain more variance in stock returns than a battery of liquidity risk measures. My results suggest that trading cost and frictions impact financial markets more than the systemic components of liquidity.","PeriodicalId":214104,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics - Econometrics of Financial Markets eJournal","volume":"45 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2013-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"3","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Econometrics: Applied Econometric Modeling in Financial Economics - Econometrics of Financial Markets eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.2078295","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 3
Abstract
This paper examines the relative importance of liquidity level and liquidity risk for the cross-section of stock returns. A portfolio analysis is implemented to make inferences about the pricing ability of liquidity as a characteristic or as a risk. I find that the ratio of absolute returns-to-volume, the Amihud liquidity measure, is able to explain more variance in stock returns than a battery of liquidity risk measures. My results suggest that trading cost and frictions impact financial markets more than the systemic components of liquidity.
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