Is Liquidity the Missing Link?

17 Pages Posted: 3 Nov 2008

See all articles by Manapon Limkriangkrai

Manapon Limkriangkrai

The University of Western Australia - Department of Accounting and Finance

Robert B. B. Durand

Curtin University of Technology - School of Economics and Finance - Department of Finance and Banking

Iain Watson

The University of Western Australia - Department of Accounting and Finance

Abstract

Durand et al. (2006a) argue that the Australian market is both internationally integrated and domestically segmented. They find that the US-based three-factor model captures returns of the largest stocks in Australia (evidence of international integration), but that it is unable to account for the returns of the smallest stocks (evidence of domestic segmentation). This study resolves the puzzle left by Durand et al. (2006a). Incorporating a liquidity factor provides the missing link in their analysis: it results in a model that permits both the international integration of the largest stocks and the model can account for the returns of the smallest stocks. Our analysis highlights the important role of liquidity in Australian asset pricing.

JEL Classification: G12, G15

Suggested Citation

Limkriangkrai, Manapon and Durand, Robert B. B. and Watson, Iain, Is Liquidity the Missing Link?. Accounting & Finance, Vol. 48, No. 5, pp. 829-845, December 2008. Available at SSRN: https://ssrn.com/abstract=1291204 or http://dx.doi.org/10.1111/j.1467-629X.2008.00260.x

Manapon Limkriangkrai (Contact Author)

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Robert B. B. Durand

Curtin University of Technology - School of Economics and Finance - Department of Finance and Banking ( email )

Bentley 6102 WA
Australia

HOME PAGE: http://tiny.cc/y85rh

Iain Watson

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

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