Liquidity in Asset Pricing: New Australian Evidence Using Low-Frequency Data

Posted: 30 Jul 2013

See all articles by Daniel Chai

Daniel Chai

Monash University

Robert W. Faff

University of Queensland

Philip Gharghori

Monash University

Date Written: July 29, 2013

Abstract

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

Suggested Citation

Chai, Daniel and Faff, Robert W. and Gharghori, Philip, Liquidity in Asset Pricing: New Australian Evidence Using Low-Frequency Data (July 29, 2013). Australian Journal of Management, Vol. 38, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=2302614

Daniel Chai

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Philip Gharghori

Monash University ( email )

Wellington Road
Melbourne, 3800
Australia
+61399059247 (Phone)

HOME PAGE: http://research.monash.edu/en/persons/philip-gharghori

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