Liquidity and asset pricing: Evidence on the role of investor holding period
AbstractWe use data on actual holding periods for all investors in a stock market over a 10 year period to investigate the links between holding periods, liquidity, and asset returns. Microstructure measures of liquidity are shown to be important determinants of the holding period decision of individual investors. We also find evidence that the average holding period is different for different investor groups. Interestingly, we find that turnover is an imperfect proxy for holding period. Moreover, while both turnover and spread are related to stock returns, holding period is not. Our results suggest that the link between liquidity and asset prices found in numerous empirical studies cannot be explained by models such as Amihud and Mendelson (1986) where investors merely want to be compensated for exogenous trading costs.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2007/11.
Length: 31 pages
Date of creation: 11 Jan 2008
Date of revision:
Market microstructure; Liquidity; Holding period;
Other versions of this item:
- Naes, Randi & Ødegaard, Bernt Arne, 2009. "Liquidity and Asset Pricing: Evidence on the Role of Investor Holding Period," UiS Working Papers in Economics and Finance 2009/19, University of Stavanger.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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