Illiquidity and Stock Returns: Evidence from the German Stock Market

40 Pages Posted: 23 Jul 2010 Last revised: 10 Aug 2010

Date Written: August 3, 2010

Abstract

This paper examines the impact of illiquidity on equity returns on the German stock market. Since illiquidity has many facets, we cover the whole spectrum of illiquidity measures: trading speed, trading costs, trading quantity, and price impact. Based on these illiquidity measures we construct factor mimicking portfolios that capture the risk of illiquidity. Our findings provide evidence that illiquidity drives stock returns and entails a significant risk premium independent of the measure chosen. Additionally, we investigate the link between size and illiquidity and tackle the question if size proxies for illiquidity.

Keywords: Liquidity, Empirical Asset pricing, Risk premium

JEL Classification: G12

Suggested Citation

Koch, Stefan, Illiquidity and Stock Returns: Evidence from the German Stock Market (August 3, 2010). Available at SSRN: https://ssrn.com/abstract=1646859 or http://dx.doi.org/10.2139/ssrn.1646859

Stefan Koch (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
319
Abstract Views
2,170
rank
130,253
PlumX Metrics