Sell-Order Illiquidity and the Cross-Section of Expected Stock Returns

49 Pages Posted: 5 May 2009 Last revised: 14 Nov 2013

See all articles by Michael J. Brennan

Michael J. Brennan

University of California, Los Angeles (UCLA) - Finance Area

Tarun Chordia

Emory University - Department of Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Qing Tong

School of Business, Renmin University of China

Date Written: March 7, 2012

Abstract

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility. .

Keywords: Liquidity, Kyle Lambda, Trading costs, Asset pricing

JEL Classification: G12, G14

Suggested Citation

Brennan, Michael John and Chordia, Tarun and Subrahmanyam, Avanidhar and Tong, Qing, Sell-Order Illiquidity and the Cross-Section of Expected Stock Returns (March 7, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1396328 or http://dx.doi.org/10.2139/ssrn.1396328

Michael John Brennan

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825 3587 (Phone)
310-206 8419 (Fax)

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Qing Tong

School of Business, Renmin University of China ( email )

Beijing
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
697
Abstract Views
2,810
rank
37,944
PlumX Metrics