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Index Revisions, Stock Liquidity and the Cost of Equity Capital

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Listed:
  • Abdul Rahman
  • Prabina Rajib

Abstract

This study examines the stock liquidity and cost of equity capital (COEC) effects around the CNX Nifty index revisions during the period 1998–2011. To examine these effects, the inclusion (exclusion) firms are compared with their matching peers. The stock liquidity effect has been examined by using distinct liquidity measures, such as trading volume , turnover rate and illiquidity ratio . The COEC effect has been examined with the help of cost of equity, stock liquidity, firm size, leverage and inclusion (exclusion) dummies. It was found that the stocks included to the CNX NIFTY were less liquid than their matching peers were, whereas the stocks excluded were experiencing more liquidity than their matching peers. Further, the study finds an increase in the COEC for the included firms and a decrease in the COEC for the excluded firms.

Suggested Citation

  • Abdul Rahman & Prabina Rajib, 2018. "Index Revisions, Stock Liquidity and the Cost of Equity Capital," Global Business Review, International Management Institute, vol. 19(4), pages 1072-1089, August.
    • Handle: RePEc:sae:globus:v:19:y:2018:i:4:p:1072-1089
    DOI: 10.1177/0972150918773005
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    References listed on IDEAS

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