The Informational Dimensions of the Amihud (2002) Illiquidity Measure

Abstract

In this study we shed a new light on Amihud’s illiquidity measure, used here as a relevant measure of consensus belief among investors about new information (Amihud, 2002). This paper demonstrates the relevance of this new approach/dimension in the context of M&A transactions. Using a large sample of M&A in the U.S., Canada and Europe over the 2000-2013 period, we report that Amihud’s (2002) measure is a significant determinant of cumulative abnormal returns observed after M&A. This metric is also consistent with financial analyst forecast activity and stands as a relevant proxy measure of price informativeness.

Keywords: Price informativeness, Amihud illiquidity measure, Cumulative abnormal returns (CARs), Financial analysts, Forecast revisions, M&A

JEL Classification: G14, G34