In Search of the Best Proxy for Liquidity in Asset Pricing Studies on the Warsaw Stock Exchange

Stereńczak, Szymon

doi:10.1007/978-3-030-21274-2_3

Cited by 3 publications

(3 citation statements)

References 27 publications

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“…This helps us to capture the short-lived price pressure that disappears before the end of the trading day. As indicated in recent studies, such a modification overperforms the standard Amihud measure in CEE markets (Będowska-Sójka, 2018; Stereńczak, 2019). To account for the outliers, we cross-sectionally winsorise computed liquidity measures at 2.5 and 97.5 percentile.…”

Section: Methodology and Datamentioning

confidence: 74%

Illiquidity and stock returns: the moderating role of investors' holding period in Central and Eastern European markets

Stereńczak

2022

IJOEM

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PurposeThe positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. The magnitude of liquidity premium should increase with market illiquidity. Existing studies, however, do not confirm this conjecture with regard to frontier markets. This may result from applying different approaches to the investors' holding period. The paper aims to identify the role of the holding period in shaping the illiquidity–return relationship in emerging and frontier stock markets, which are arguably considered illiquid.Design/methodology/approachThe authors utilise the data on stocks listed on fourteen exchanges in Central and Eastern Europe. The authors regress stock returns on liquidity measures variously transformed to reflect the clientele effect in a liquidity–return relationship.FindingsThe authors show that the investors' holding period moderates the illiquidity–return relationship in CEE markets and also show that the liquidity premium in these markets is statistically and economically relevant.Practical implicationsThe findings may be of great interest to investors, companies and regulators. Investors and companies should take liquidity into account when making decisions; regulators should employ liquidity-enhancing actions to decrease companies' cost of capital and expand firms' investment opportunities, which will improve growth perspectives for the entire economy.Originality/valueThese findings enrich the understanding of the role that the investors' holding period plays in the illiquidity–return relationship in CEE markets. To the best knowledge, this is the first study which investigates the effect of holding period on liquidity premium in emerging and frontier markets.

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Section: Methodology and Datamentioning

confidence: 74%

Illiquidity and stock returns: the moderating role of investors' holding period in Central and Eastern European markets

Stereńczak

2022

IJOEM

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“…It has been indicated as the best measure of liquidity in both developed and emerging markets (Goyenko et al , 2009; Fong et al , 2017; Ahn et al , 2018). However, as indicated by Stereńczak (2019a), Amihud’s measure reflects stock liquidity in the WSE better if the return in the numerator is replaced with the log of the daily price range. Such a modification allows also to capture the short-term price pressure that disappears before the end of the trading day.…”

Section: Methodology and Datamentioning

confidence: 99%

“…Such a modification allows also to capture the short-term price pressure that disappears before the end of the trading day. Liquidity measure ILLIQ R is, thus, computed as follows (Stereńczak, 2019a): where p H , p L and Vol denote the maximum daily price, minimum daily price and trading volume denominated in thousands of PLN, respectively.…”

Section: Methodology and Datamentioning

confidence: 99%

Conditional stock liquidity premium: is Warsaw stock exchange different?

Stereńczak

2021

SEF

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Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

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Dividend policy and stock liquidity: Lessons from Central and Eastern Europe

Stereńczak

Kubiak

2022

Research in International Business and Finance

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In Search of the Best Proxy for Liquidity in Asset Pricing Studies on the Warsaw Stock Exchange

Cited by 3 publications

References 27 publications

Illiquidity and stock returns: the moderating role of investors' holding period in Central and Eastern European markets

Illiquidity and stock returns: the moderating role of investors' holding period in Central and Eastern European markets

Conditional stock liquidity premium: is Warsaw stock exchange different?

Dividend policy and stock liquidity: Lessons from Central and Eastern Europe

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