Liquidity risk and stock returns around the world

Samuel Xin Liang, John K.C. Wei

Research output: Journal article publicationJournal articleAcademic researchpeer-review

22 Citations (Scopus)

Abstract

The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there are less insider trading activities. We also discover that global liquidity risk is a significant pricing factor across all developed country market portfolios after controlling for global market, value, and size factors. The contribution of this risk to the return on a country market portfolio is economically and statistically significant within and across regions.

Original languageEnglish
Pages (from-to)3274-3288
Number of pages15
JournalJournal of Banking and Finance
Volume36
Issue number12
DOIs
Publication statusPublished - 1 Dec 2012
Externally publishedYes

Keywords

  • International markets
  • Liquidity risk
  • Risk premium

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this