Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication

27 Pages Posted: 22 Jan 2017

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Interactive Brokers, Inc. (IBKR); University of Pennsylvania - Financial Economists Roundtable

Andrea Amato

University of California, Berkeley - Haas School of Business

Date Written: 2002

Abstract

This paper replicates and extends the Amihud (2002) study that links liquidity to asset pricing. Using the current version of the CRSP dataset, we obtain essentially the same results that Amihud presents. The same methods applied to more recent data show a much weaker relation between liquidity and asset pricing. Finally, we compare the explanatory power of Amihud’s illiquidity measure to that of other simple measures that use the same data for their calculation. We find that the Amihud illiquidity measure is no better than substantially simpler measures.

Keywords: Liquidity, illiquidity, Amihud measure, asset pricing

JEL Classification: G12, G10

Suggested Citation

Harris, Lawrence and Amato, Andrea, Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication (2002). Marshall School of Business Working Paper No. 17-13. Available at SSRN: https://ssrn.com/abstract=2901327 or http://dx.doi.org/10.2139/ssrn.2901327

Lawrence Harris (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)

Institute for Quantitative Research in Finance (the Q-Group) ( email )

Q Group
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Interactive Brokers, Inc. (IBKR) ( email )

209 South LaSalle Street
10th Floor
Chicago, IL 60604
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University of Pennsylvania - Financial Economists Roundtable ( email )

Philadelphia, PA
United States

Andrea Amato

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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