Liquidity and Asset Pricing: Evidence from the Hong Kong Stock Market

Posted: 23 Dec 2011

See all articles by Keith Lam

Keith Lam

University of Macau

Lewis Tam

Faculty of Business Administration, University of Macau

Date Written: January 15, 2011

Abstract

This study investigates the role of liquidity in pricing stock returns in the Hong Kong stock market. Our results show that liquidity is an important factor for pricing returns in Hong Kong after taking well-documented asset pricing factors into consideration. The results are robust to adding portfolio residuals and higher moment factor in the factor models. The results are also robust to seasonality, and conditional-market tests. We also compare alternative factor models and find that the liquidity four-factor model (market excess return, size, book-to-market ratio, and liquidity) is the best model to explain stock returns in the Hong Kong stock market, while the momentum factor is not found to be priced.

Keywords: liquidity, turnover ratio, asset pricing, Hong Kong stock market, factor model

JEL Classification: G12, G15

Suggested Citation

Lam, Keith and Tam, Lewis, Liquidity and Asset Pricing: Evidence from the Hong Kong Stock Market (January 15, 2011). Journal of Banking and Finance, Vol. 35, No. 9, 2011, Available at SSRN: https://ssrn.com/abstract=1976131

Keith Lam (Contact Author)

University of Macau ( email )

Macau

Lewis Tam

Faculty of Business Administration, University of Macau ( email )

Room E22-4055, University of Macau
Avenida da Universidade
Taipa
Macau

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