Systematic liquidity: commonality and inter-temporal variation in the Portuguese stock market

Marcelo, José Luis Miralles; Quirós, María del Mar Miralles; Oliveira, Célia

doi:10.5295/cdg.140472mm

Cited by 7 publications

(11 citation statements)

References 52 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Moreover, various modifications of the models proposed by Chordia et al (2000) have been presented in the literature (e.g. Coughenour & Saad, 2004;Brockman & Chung, 2006;Kempf & Mayston, 2008;Brockman et al, 2009;Pukthuanthong-Le & Visaltanachoti, 2009;Kang & Zhang, 2013;Foran et al, 2015;Miralles Marcelo et al, 2015;Bai & Qin, 2015).…”

Section: Methodsmentioning

confidence: 99%

Intra-market commonality in liquidity: new evidence from the Polish stock exchange

Olbryś

2019

View full text Add to dashboard Cite

Research background: Empirical market microstructure research has recently shifted its focus from the examination of liquidity of individual securities towards analyses of the common determinants and components of liquidity. The identification of commonality in liquidity emerged as a new and fast growing strand of the literature on liquidity. However, the results around the world are ambiguous and rather depend on a specific stock market. Purpose of the article: The aim of this study is to explore intra-market commonality in liquidity on the Warsaw Stock Exchange (WSE) by using daily proxies of six liquidity estimates: percentage relative spread, percentage realized spread, percentage price impact, percentage order ratio, modified turnover, and modified version of the Amihud measure. The sample covers a period from January 2005 to December 2016. The database contains the group of eighty-six WSE-listed companies. Methods: The research hypothesis that there is commonality in liquidity on the Polish stock market is tested. The OLS with the HAC covariance matrix estimation and the GARCH-type models are employed to infer the patterns of liquidity co-movements on the WSE. Moreover, because the sample period is quite long, the stability of the empirical results by time period is examined. Seven 6-year time windows are utilized in the study. Findings & Value added: The regression results reveal weak evidence of co-movements in liquidity on the WSE, regardless of the choice of the liquidity proxy. Furthermore, the robustness tests based on the time rolling-window approach do not unambiguously support the research hypothesis that there is commonality in liquidity on the Polish stock market. To the best of the author’s knowledge, the empirical findings presented here are novel and have not been reported in the literature thus far.

show abstract

Section: Methodsmentioning

confidence: 99%

Intra-market commonality in liquidity: new evidence from the Polish stock exchange

Olbryś

2019

View full text Add to dashboard Cite

show abstract

“…Previous empirical evidence suggests that there is commonality in illiquidity in Portugal (Miralles-Marcelo et al, 2015). In this sense, as Chordia et al (2000) argue, commonality in liquidity could represent a source of systematic risk, and in that case the sensitivity of an individual stock to liquidity shocks could induce the market to require a higher average return.…”

Section: Asset Pricing With Liquiditymentioning

confidence: 96%

“…The initial works of Escalda (1993) and Mello and Escalda (1994) were focused on analysing the role of individual liquidity in asset pricing for a sample period in which the Portuguese market was an emerging market. However, subsequent studies, such as those of Pereira and Cutelo (2013) and Miralles-Marcelo et al (2015), have focused on other aspects of liquidity. More precisely, Pereira and Cutelo (2013) observe that low-price stocks are less liquid than high-price stocks and trade at lower valuation ratios.…”

Section: Previous Empirical Evidencementioning

confidence: 99%

“…Finally, they argue that their results do not support any of the existing theories on optimal price per share. On the other hand, Miralles-Marcelo et al (2015) analyse whether there exists commonality in liquidity in the Portuguese market over the 1988-2011 period. Following the Chordia et al (2000) methodology, some evidence of commonality in liquidity is found in the Portuguese market when the proportion of zero returns is used as a measure of liquidity.…”

Section: Previous Empirical Evidencementioning

confidence: 99%

“…Following recent evidence for the Portuguese stock market (Miralles-Marcelo et al, 2015), we construct for each asset a monthly time series for the monthly proportion of zero returns, ZR, computed as the number of daily zero returns, #ZR divided by the total number of transactions days in each month, D:…”

Section: The Illiquidity Measurementioning

confidence: 99%

See 2 more Smart Citations

The role of liquidity in asset pricing: the special case of the Portuguese Stock Market

Miralles-Quirós

Miralles‐Quirós

Oliveira

2017

JEFAS

View full text Add to dashboard Cite

Purpose The aim of this paper is to examine the role of liquidity in asset pricing in a tiny market, such as the Portuguese. The unique setting of the Lisbon Stock Exchange with regards to changes in classification from an emerging to a developed stock market, allows an original answer to whether changes in the development of the market affect the role of liquidity in asset pricing. Design/methodology/approach The authors propose and compare two alternative implications of liquidity in asset pricing: as a desirable characteristic of stocks and as a source of systematic risk. In contrast to prior research for major stock markets, they use the proportion of zero returns which is an appropriated measure of liquidity in tiny markets and propose the separated effects of illiquidity in a capital asset pricing model framework over the whole sample period as well as in two sub-samples, depending on the change in classification of the Portuguese market, from an emerging to a developed one. Findings The overall results of the study show that individual illiquidity affects Portuguese stock returns. However, in contrast to previous evidence from other markets, they show that the most traded stocks (hence the most liquid stocks) exhibit larger returns. In addition, they show that the illiquidity effects on stock returns were higher and more significant in the period from January 1988 to November 1997, during which the Portuguese stock market was still an emerging market. Research limitations/implications These findings are relevant for investors when they make their investment decisions and for market regulators because they reflect the need of improving the competitiveness of the Portuguese stock market. Additionally, these findings are a challenge for academics because they exhibit the need for providing alternative theories for tiny markets such as the Portuguese one. Practical implications The results have important implications for individual and institutional investors who can take into account the peculiar effect of liquidity in stock returns to make proper investment decision. Originality/value The Portuguese market provides a natural experimental area to analyse the role of liquidity in asset pricing, because it is a tiny market and during the period studied it changed from an emerging to a developed stock market. Moreover, the authors have to highlight that previous evidence almost exclusively focuses on the US and major European stock markets, whereas studies for the Portuguese one are scarce. In this context, the study provides an alternative methodological approach with results that differ from those theoretically expected. Thus, these findings are a challenge for academics and open a theoretical and a practical debate.

show abstract

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

Altay

Çalgıcı²

2019

Borsa Istanbul Review

View full text Add to dashboard Cite

Systematic liquidity: commonality and inter-temporal variation in the Portuguese stock market

Cited by 7 publications

References 52 publications

Intra-market commonality in liquidity: new evidence from the Polish stock exchange

Intra-market commonality in liquidity: new evidence from the Polish stock exchange

The role of liquidity in asset pricing: the special case of the Portuguese Stock Market

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

Contact Info

Product

Resources

About