Systematic Liquidity Risk and Asset Pricing: Evidence from London Stock Exchange

Mazouz, Khelifa; Alrabadi, Dima Waleed Hanna; Freeman, Mark

doi:10.2139/ssrn.1405705

Cited by 4 publications

(3 citation statements)

References 25 publications

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“…13 In contrast, US stock prices exhibit much larger variations (Weld et al, 2009). Consistent with our results, Mazouz et al (2010) also find that stock liquidity is not a priced factor in the UK market. Also, recent findings of Foran et al (2014; show that the level of liquidity as a characteristic has very limited power to explain UK stock returns.…”

Section: Statistical Significance Of Estimated Factorssupporting

confidence: 80%

Identifying the relative importance of stock characteristics

French¹,

Li³

2016

Journal of Multinational Financial Management

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Section: Statistical Significance Of Estimated Factorssupporting

confidence: 80%

Identifying the relative importance of stock characteristics

French¹,

Li³

2016

Journal of Multinational Financial Management

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show abstract

“…This perhaps indicates that because the initial reporting of the lagged liquidity effect, markets have become quicker at incorporating such information into prices. As noted in the introduction, the finding that illiquidity is not priced is not new (Mazouz et al, 2010), while the recent work of Harris and Amato (2018) and Drienko et al (2018) equally cast doubt on the predictive ability of the Amihud ratio. In terms of the appropriate model specification as given by the panel test, we can see that the common constant pooled model is adequate [2].…”

Section: Stock Returns and Illiquiditymentioning

confidence: 99%

“…For example, Watanabe and Watanabe (2008) report that illiquidity is only priced in times of high market turnover, while Martinez et al (2005) report a negative relation between illiquidity and stock returns in the Spanish market. Finally, Mazouz et al (2010) report that illiquidity is not priced in stock trading in London. Therefore, it seems appropriate to re-assess the evidence on illiquidity and stock returns.…”

mentioning

confidence: 99%

Stock returns, illiquidity and feedback trading

Chen

McMillan

2020

RAF

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Purpose This study aims to examine the relation between illiquidity, feedback trading and stock returns for several European markets, using panel regression methods, during the financial and the sovereign debt crises. The authors’ interest here lies twofold. First, the authors seek to compare the results obtained here under crisis conditions with those in the existing literature. Second, and of greater importance, the authors wish to examine the interaction between liquidity and feedback trading and their effect on stock returns. Design/methodology/approach The authors jointly model both feedback trading and illiquidity, which are typically considered in isolation. The authors use panel estimation methods to examine the relations across the European markets as a whole. Findings The key results suggest that in common with the literature, illiquidity has a negative impact upon contemporaneous stock returns, while supportive evidence of positive feedback trading is reported. However, in contrast to the existing literature, lagged illiquidity is not a priced risk, while negative shocks do not lead to greater feedback trading behaviour. Regarding the interaction between illiquidity and feedback trading, the study results support the view that greater illiquidity is associated with stronger positive feedback. Originality/value The study results suggest that when price changes are more observable, due to low liquidity, then feedback trading increases. Therefore, during the crisis periods that afflicted European markets, the lower levels of liquidity prevalent led to an increase in feedback trading. Thus, negative liquidity shocks that led to a fall in stock prices were exacerbated by feedback trading.

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Illiquidity and Stock Returns: Evidence from the German Stock Market

Koch

2010

SSRN Journal

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Systematic Liquidity Risk and Asset Pricing: Evidence from London Stock Exchange

Cited by 4 publications

References 25 publications

Identifying the relative importance of stock characteristics

Identifying the relative importance of stock characteristics

Stock returns, illiquidity and feedback trading

Illiquidity and Stock Returns: Evidence from the German Stock Market

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