Liquidity Constraints and the Demand for Assets: An Application to the Festivity Effect
35 Pages Posted: 2 Nov 2005
Date Written: October 17, 2005
The liquidity patterns of investors provide a new common framework to explain the autocorrelation of returns and volumes, as well as some calendar anomalies. Festivities are occasions around which liquidity constraints are particularly relevant, leading to a "festivity effect". This effect refers to a pre-festivity period of negative returns and relatively low trading activity and, once the occasion is over, a post-festivity period of positive returns and increased activity. We establish this effect for ten countries in the Middle- and Far-East where the main festivities occur every year at a different time of the Western calendar.
Keywords: Liquidity constraints, autocorrelation of returns and volumes,festivity effect, January effect, anomalies
JEL Classification: G14, G15
Suggested Citation: Suggested Citation