Liquidity Risk and Stock Returns Around the World
48 Pages Posted: 17 Feb 2005 Last revised: 10 Apr 2022
Date Written: May 30, 2012
Abstract
The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there are less insider trading activities. We also discover that global liquidity risk is a significant pricing factor across all developed country market portfolios after controlling for global market, value, and size factors. The contribution of this risk to the return on a country market portfolio is economically and statistically significant within and across regions.
Keywords: Liquidity risk, Risk premium, International markets
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation
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