Liquidity and stock returns: Evidence from a pure order-driven market using a new liquidity proxy

Marshall, Ben R.

doi:10.1016/j.irfa.2004.09.001

Cited by 22 publications

(12 citation statements)

References 44 publications

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“…Our analysis builds upon a number of country studies that address the effect of liquidity on stock returns for non-U.S. mature markets such as Australia (e.g., Chan and Faff 2003;Lischewski and Voronkova 2012;Marshall 2006;Marshall and Young 2003). Lam and Tam's (2011) study of Hong Kong markets also stresses the importance of liquidity in stock return pricing.…”

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confidence: 99%

Liquidity and Return Relationships in an Emerging Market

Batten

2014

Emerging Markets Finance and Trade

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In this paper, we investigate the relationship between liquidity and stock returns in the Vietnam stock market during the global financial crisis. Vietnam is one of a new group of frontier emerging markets referred to as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). We use a rich and detailed data set of firm characteristics to identify a positive relationship between liquidity and stock returns. This contradicts the negative correlation typically found in stock returns in developed markets. Our results support the proposition that when a market is not fully integrated with the global economy, a lack of liquidity will be a less important risk factor. Our findings contribute to those studies that highlight the diversification benefits from including frontier markets, which have a lower degree of integration with the global economy, in international portfolios.

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confidence: 99%

Liquidity and Return Relationships in an Emerging Market

Batten

2014

Emerging Markets Finance and Trade

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“…where P t is the price at which the last trade happened before time t, and Q t implies the quantity traded at the price P t . The market microstructure offers indecisive evidence regarding the relationship between return and spread which is considered as an important motive behind developing turnover as a measure of liquidity (Marshall, 2006). This has a wide theoretical support as well.…”

Section: Quantity Dimensional Measures Of Liquiditymentioning

confidence: 99%

Size Effect in Market-wide Liquidity Commonality: Evidence from the Indian Stock Market

Cheriyan¹,

Lazar

2019

OMEE

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Liquidity commonality and the co-movements in trading costs related to such commonality have remarkable implications in market microstructure. Analyzing and identifying such commonality will enable the investor and policy maker to discover evidence regarding the inventory risks and asymmetric information influencing individual securities' liquidity. Thus, this study aims at documenting the liquidity commonality and measuring its extent in the Indian stock market. Employing fourteen liquidity measures attributed to the cost, quantity, time, and multidimensional aspects of liquidity, it empirically proves the existence of co-movements among market-wide liquidity and the individual securities' liquidity. The study also shows the presence of a size effect in liquidity commonality in Indian stock market. It is found that the slope coefficient indicating the interface between market-wide liquidity and individual securities' liquidity generally increases with size.

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“…Additionally, the impact of market liquidity on the optimal asset portfolio strategies of some large‐scale PSPs is examined using the bid–ask spreads as the proxy for the proportional transaction cost, although bid–ask spread could understate the true transaction costs for large investors such as pension funds (Marshall, )…”

Section: Introductionmentioning

confidence: 99%

“…For example, Marshall and Young () calculate the bid–ask spread using every Wednesday's closing bid and ask prices. According to Marshall (), an order‐based measure such as the bid–ask spread is effective for measuring the liquidity of small investors; however, it is not effective for measuring the liquidity of larger investors. Marshall insists that weighted order value can compensate for the weak points of traditional liquidity proxies by incorporating the bid–ask spread and the market depth; weighted order value is one of the liquidity proxies used by Aitken and Comerton ().…”

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Net Contribution, Liquidity, and Optimal Pension Management

Choi¹,

Jang²,

Kim³

et al. 2015

J of Risk & Insurance

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This article presents an optimal portfolio balancing strategy for a pension fund manager in the presence of fixed and proportional transaction costs with respect to stock trades and changes in net contribution. An analytic solution to the one-period problem is presented and a heuristic method for a multiperiod problem is developed. For reasonably calibrated parameters, we find that our numerical results explain the actual asset allocation schemes of some internationally renowned pension funds. Moreover, we show that net contribution and liquidity have significant impacts on the optimal asset allocation of a pension fund.

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Liquidity and stock returns: Evidence from a pure order-driven market using a new liquidity proxy

Cited by 22 publications

References 44 publications

Liquidity and Return Relationships in an Emerging Market

Liquidity and Return Relationships in an Emerging Market

Size Effect in Market-wide Liquidity Commonality: Evidence from the Indian Stock Market

Net Contribution, Liquidity, and Optimal Pension Management

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