Advanced Search
MyIDEAS: Login

Liquidity and stock returns in Japan: New evidence

Contents:

Author Info

  • Chang, Yuk Ying
  • Faff, Robert
  • Hwang, Chuan-Yang

Abstract

The liquidity/stock returns linkage was studied using data from the First Section, the Second Section, and the Mothers Section of the Tokyo Stock Exchange (TSE). In our overall tests, we found a significantly negative (positive) relationship between liquidity (illiquidity) proxies and returns. Upon exploring this further for the impact of business cycles, we found that while the expansionary phases largely confirm the overall finding, contractionary phases do not. When we controlled for liquidity variability in the cross-sectional regressions, the role of the liquidity level showed strong significance across business cycles, different subperiods and all Sections of the TSE. With regard to liquidity variability, we observed a strongly significant and negative association with stock returns.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VFF-4X7YNF5-1/2/df7832b6e137c4527ce26999906a80b1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 18 (2010)
Issue (Month): 1 (January)
Pages: 90-115

as in new window
Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:90-115

Contact details of provider:
Web page: http://www.elsevier.com/locate/pacfin

Related research

Keywords: Liquidity Liquidity variability Stock returns Tokyo Stock Exchange Business cycles;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pastor, Lubos & Stambaugh, Robert F., 2003. "Liquidity Risk and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 642-685, June.
  2. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
  3. Acharya, Viral V & Pedersen, Lasse Heje, 2003. "Asset Pricing with Liquidity Risk," CEPR Discussion Papers 3749, C.E.P.R. Discussion Papers.
  4. Vrugt, Evert B., 2009. "U.S. and Japanese macroeconomic news and stock market volatility in Asia-Pacific," Pacific-Basin Finance Journal, Elsevier, vol. 17(5), pages 611-627, November.
  5. Ahn, Sanghoon & Bhattacharya, Utpal & Jung, Taehun & Nam, Giseok, 2004. "Do Japanese CEOs Matter?," CEI Working Paper Series 2004-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  6. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September.
  7. Bae, Kee-Hong & Yamada, Takeshi & Ito, Keiichi, 2008. "Interaction of investor trades and market volatility: Evidence from the Tokyo Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 370-388, September.
  8. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-64, December.
  9. Pettway, Richard H. & Thosar, Satish & Walker, Scott, 2008. "Auctions versus book-built IPOs in Japan: A comparison of aftermarket volatility," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 224-235, June.
  10. Hamao, Y. & Hasbrouck, J., 1992. "Securities Trading in the Absence of Dealers: Trade and Quotes on the Tokyo Stock Exchange," Papers 92-35, Columbia - Graduate School of Business.
  11. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-41.
  12. Bremer, Marc & Hiraki, Takato, 1999. "Volume and individual security returns on the Tokyo Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 351-370, August.
  13. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
  14. Meir Statman & Steven Thorley & Keith Vorkink, 2006. "Investor Overconfidence and Trading Volume," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1531-1565.
  15. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  16. Terrance Odean, 1998. "Volume, Volatility, Price and Profit When All Traders Are Above Average," Finance 9803001, EconWPA.
  17. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151, January.
  18. Liu, Weimin, 2006. "A liquidity-augmented capital asset pricing model," Journal of Financial Economics, Elsevier, vol. 82(3), pages 631-671, December.
  19. Aitken, Michael & Comerton-Forde, Carole, 2003. "How should liquidity be measured?," Pacific-Basin Finance Journal, Elsevier, vol. 11(1), pages 45-59, January.
  20. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  21. Saito, Takuji & Odagiri, Hiroyuki, 2008. "Intraboard heterogeneity and the role of bank-dispatched directors in Japanese firms: An empirical study," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 572-590, November.
  22. Terrance Odean, 1998. "Volume, Volatility, Price, and Profit When All Traders Are Above Average," Journal of Finance, American Finance Association, vol. 53(6), pages 1887-1934, December.
  23. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
  24. Chordia, Tarun & Subrahmanyam, Avanidhar & Anshuman, V. Ravi, 2001. "Trading activity and expected stock returns," Journal of Financial Economics, Elsevier, vol. 59(1), pages 3-32, January.
  25. Bruce N. Lehmann and David M. Modest., 1994. "Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View," Research Program in Finance Working Papers RPF-234, University of California at Berkeley.
  26. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
  27. Lehmann, Bruce N & Modest, David M, 1994. " Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View," Journal of Finance, American Finance Association, vol. 49(3), pages 951-84, July.
  28. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2000. "Commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 56(1), pages 3-28, April.
  29. Huberman, Gur & Halka, Dominika, 2001. "Systematic Liquidity," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 24(2), pages 161-78, Summer.
  30. Andrea L. Eisfeldt, 2004. "Endogenous Liquidity in Asset Markets," Journal of Finance, American Finance Association, vol. 59(1), pages 1-30, 02.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Nguyen, Nhut H. & Lo, Ka Hei, 2013. "Asset returns and liquidity effects: Evidence from a developed but small market," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1175-1190.
  2. Kim, Soon-Ho & Kim, Dongcheol & Shin, Hyun-Soo, 2012. "Evaluating asset pricing models in the Korean stock market," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 198-227.
  3. Roslily Ramlee & Ruhani Ali, 2012. "Liquidity, Initial Public Offering (IPO) Long-Term Return and Government Ownership Evidence from Bursa Malaysia IPO Stocks," Asian Academy of Management Journal of Accounting and Finance, Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 39-66.
  4. Lischewski, Judith & Voronkova, Svitlana, 2012. "Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?," Emerging Markets Review, Elsevier, vol. 13(1), pages 8-25.
  5. Hearn, Bruce, 2011. "Size and liquidity effects in Japanese regional stock markets," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 157-181, June.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:90-115. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.