Sell-Order Illiquidity and the Cross-Section of Expected Stock Returns
49 Pages Posted: 5 May 2009 Last revised: 14 Nov 2013
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: Suggested Citation
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