Liquidity adjusted capital asset pricing model in an emerging market: Liquidity risk in Borsa Istanbul

Altay, Erdinç; Çalgıcı, Seda

doi:10.1016/j.bir.2019.06.002

Cited by 23 publications

(22 citation statements)

References 42 publications

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“…This indicates that the variable liquidity (GMF) is better able to explain the assets pricing behaviour as compared to the variable leverage (DME). These results support the findings of some of the major studies which argue that liquidity is a major factor that determines the asset pricing of various stocks (Chan and Faff, 2005;Liu, 2006;Altay and Çalgıcı, 2019).…”

Section: Results Of Hierarchical Linear Regressionsupporting

confidence: 90%

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Role of leverage and liquidity risk in asset pricing: evidence from Indian stock market

Jain

Singla

2021

XJM

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Purpose Asset pricing revolves around the core aspects of risk and expected return. The main objective of the study is to test different asset pricing models for the Indian securities market. This paper aims to analyse whether leverage and liquidity augmented five-factor model performs better than Capital Asset Pricing Model (CAPM), Fama and French three-factor model, leverage augmented four-factor model and liquidity augmented four-factor model. Design/methodology/approach The data for the current study comprises records on prices of securities that are part of the Nifty 500 index for a time frame of 14 years, that is, from October 2004 to September 2017 consisting of 183 companies using time series regression. Findings The results indicate that the five-factor model performs better than CAPM and the three-factor model. The model outperforms leverage augmented and liquidity augmented four-factor models. The empirical evidence shows that the five-factor model has the highest explanatory power among the entire asset pricing models considered. Practical implications The present study bears certain useful implications for various stakeholders including fund managers, investors and academicians. Originality/value This study presents a five-factor model containing two additional factors, that is, leverage and liquidity risk along with the Fama-French three-factor model. These factors are expected to give more value to the model in comparison to the Fama-French three-factor model.

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Section: Results Of Hierarchical Linear Regressionsupporting

confidence: 90%

“…Sehgal (2014) concluded that the four-factor liquidity augmented FFM proved to describe the asset pricing better as compared to the one factor CAPM and the three-factor model of Fama-French in India. Altay and Çalgıcı (2019) showed that asset return has a significant effect on the market liquidity.…”

Section: Review Of Literaturementioning

confidence: 99%

Role of leverage and liquidity risk in asset pricing: evidence from Indian stock market

Jain

Singla

2021

XJM

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“…In addition to the level of stock market liquidity, market liquidity risk is also found to be an influencing factor of expected returns. The market liquidity risk has been favorably measured as the co-movement between stock and market liquidity, stock liquidity and market return, and market liquidity and stock return in related studies (Altay & Çalgıcı, 2019;Bradrania & Peat, 2014;K. H. Lee, 2011;Vu et al, 2015).…”

Section: Measurement Of Stock Market Liquiditymentioning

confidence: 99%

Stock Market Liquidity: A Literature Review

Naik

Reddy

2021

Sage Open

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The purpose of this study is to identify the key aspects that have been studied in the area of stock market liquidity, accumulate their important findings, and also provide a quantitative categorization of reviewed literature that will facilitate in conducting further research. The study analyzes relevant research papers published after the global financial crisis of 2008 and finds that measurement of liquidity, factors influencing liquidity, the relationship between market liquidity and expected return, and market liquidity risk and its relationship with expected returns have been explored in the context of the stock market liquidity. Among these, the factors influencing liquidity have been prominently researched in the reviewed studies. The study concludes that the identified areas can be potentially researched concerning the emerging markets by considering the multidimensional quality of market liquidity. Also, the inter-linkages between the liquidity of emerging markets with that of the global stock markets can be further evaluated.

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“…By using the bid-ask spread and shares turnover as proxies for liquidity, Badavar Nahandi et al (2014) found a positive correlation between liquidity and stock returns in Iran from 2000 to 2006. Altay and Calgici (2019) discussed the effects of liquidity risk on asset returns in Turkey (Borsa Istanbul) from 1996 to 2018. Using the LCAPM framework, they showed that the sensitivity of asset prices to market liquidity has a positive effect on returns.…”

Section: Returns Transaction Costs and Liquidity Riskmentioning

confidence: 99%

Liquidity risk, transaction costs and financial closedness: lessons from the Iranian and Turkish stock markets

Alizadeh

Tash‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Dreyer

2021

RAF

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Purpose This paper aims to study the impact of liquidity risk and transaction costs on stock pricing in Iran, a closed market operating under a financial embargo and compare the results with those of an important neighboring market, namely, Turkey. Design/methodology/approach This study follows Liu et al. (2016) and incorporates liquidity risk and transaction costs into the traditional consumption-based asset-pricing model (CCAPM) from 2009 to 2017. Effective transaction costs are estimated a la Hasbrouck (2009) and liquidity risk according to eight different criteria. Findings According to the results, both liquidity risk and transaction costs are higher in Iran, possibly due to the financial embargo. Thus, relative to Turkey, this paper should expect a higher increase in the CCAPM pricing performance in Iran when accounting for these two variables. The results are in line with this expectation and indicate that adjusting the CCAPM significantly increases its pricing performance in both countries, but relatively more in Iran. Originality/value This study compares liquidity risk and transaction costs in an economy under the extreme case of a financial embargo to an open yet in other important aspects similar economy from the same region.

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Liquidity adjusted capital asset pricing model in an emerging market: Liquidity risk in Borsa Istanbul

Cited by 23 publications

References 42 publications

Role of leverage and liquidity risk in asset pricing: evidence from Indian stock market

Role of leverage and liquidity risk in asset pricing: evidence from Indian stock market

Stock Market Liquidity: A Literature Review

Liquidity risk, transaction costs and financial closedness: lessons from the Iranian and Turkish stock markets

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