State-Dependent Stock Liquidity Premium: The Case of the Warsaw Stock Exchange

40 Pages Posted: 1 Apr 2019

Date Written: January 25, 2019

Abstract

The effect of stock liquidity on stock returns is well documented on the developed capital markets, while similar studies on emerging markets are still scarce and their results ambiguous. This paper aims to answer the question whether there exists stock liquidity premium on the Polish capital market, and if so, whether this premium increases during the periods of market downturn. Polish capital market may serve as a benchmark for other emerging markets in the region of Central and Eastern Europe, hence the results of this research should be of great interest for investors and policy makers in Poland and other post-communist European countries. In the empirical study a unique empirical methodology has been applied, which guarantees the uniqueness of the results obtained. The results obtained suggest that on the Polish stock market exists stock liquidity premium, which is statistically significant, but only slightly economically relevant. It also does not increase during the periods of bearish market, what results from the lengthening of average holding period when market liquidity decreases.

Keywords: liquidity premium, Warsaw Stock Exchange, pricing of liquidity, liquidity costs, amortised liquidity costs

JEL Classification: G11, G12

Suggested Citation

Stereńczak, Szymon, State-Dependent Stock Liquidity Premium: The Case of the Warsaw Stock Exchange (January 25, 2019). Available at SSRN: https://ssrn.com/abstract=3349268 or http://dx.doi.org/10.2139/ssrn.3349268
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