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 language | English |
|---|---|
| Pages (from-to) | 3274-3288 |
| Number of pages | 15 |
| Journal | Journal of Banking and Finance |
| Volume | 36 |
| Issue number | 12 |
| DOIs | |
| Publication status | Published - 1 Dec 2012 |
| Externally published | Yes |
Keywords
- International markets
- Liquidity risk
- Risk premium
ASJC Scopus subject areas
- Finance
- Economics and Econometrics