Liquidity in Asset Pricing: New Australian Evidence Using Low-Frequency Data
Posted: 30 Jul 2013
Date Written: July 29, 2013
Employing a new proxy for liquidity, this paper examines its impact on stock returns in the context of the Fama-French framework. We augment the Carhart four-factor model with a liquidity factor in our asset pricing tests. Using an extensive dataset drawn from the Australian equities market, we find that liquidity explains a portion of the common variation in stock returns even after controlling for size, book-to-market and momentum. However, our findings suggest that the liquidity factor only adds marginal explanatory power to contemporary asset pricing models.
Keywords: Asset pricing, Australian evidence, Fama-French model, liquidity
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