Liquidity and the Cross-Section of International Stock Returns
38 Pages Posted: 2 Mar 2020 Last revised: 20 Mar 2021
Date Written: January 16, 2020
We perform a comprehensive investigation of the illiquidity premium in international stock markets. We examine several established liquidity measures in 45 countries for the years 1990–2020. Our findings provide convincing evidence that liquidity pricing depends strongly on firm size. Although the premium is globally present, it exists only among microcap stocks, which have negligible economic significance. Outside the microcap universe, virtually no liquidity effect can be observed.
Keywords: illiquidity premium, liquidity effect, international markets, microcaps, Amihud’s measure, turnover ratio, bid-ask spread, zero-return days, asset pricing, return predictability
JEL Classification: G12, G15
Suggested Citation: Suggested Citation