Investors' Compensation for Illiquidity - Evidence from the German Stock Market

International Journal of Economic Research, Forthcoming

31 Pages Posted: 5 Aug 2010 Last revised: 30 Nov 2010

See all articles by Matthias Bank

Matthias Bank

University of Innsbruck

Martin Larch

University of Innsbruck

Georg Peter

University of Innsbruck

Date Written: September 30, 2010

Abstract

This paper examines whether illiquidity is a determinant of monthly stock returns in the German market. Estimating time-series and cross-sectional models, we investigate the impact of illiquidity both on market returns and on individual stock returns. Illiquidity is approximated by five measures that capture trading activity, trading costs and the price impact of order flow. Our results suggest that average market and individual stock returns are a positive function of "expected" illiquidity, while "unexpected" illiquidity has a negative impact on contemporaneous returns. Illiquidity should therefore be regarded as a determinant of returns for German stocks.

Keywords: Illiquidity, Stock Returns, German Stock Market

JEL Classification: G12

Suggested Citation

Bank, Matthias and Larch, Martin and Peter, Georg, Investors' Compensation for Illiquidity - Evidence from the German Stock Market (September 30, 2010). International Journal of Economic Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1653831

Matthias Bank

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Martin Larch

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Georg Peter (Contact Author)

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
234
Abstract Views
1,146
rank
146,237
PlumX Metrics