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Liquidity and asset pricing: Evidence on the role of investor holding period

Author

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  • Randi Næs

    (Norges Bank (Central Bank of Norway))

  • Bernt Arne Ødegaard

    (Norwegian School of Management (BI) and Norges Bank (Central Bank of Norway))

Abstract

We 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.

Suggested Citation

  • Randi Næs & Bernt Arne Ødegaard, 2008. "Liquidity and asset pricing: Evidence on the role of investor holding period," Working Paper 2007/11, Norges Bank.
    • Handle: RePEc:bno:worpap:2007_11
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    References listed on IDEAS

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    Cited by:

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    2. Szymon Stereńczak, 2020. "State-Dependent Stock Liquidity Premium: The Case of the Warsaw Stock Exchange," IJFS, MDPI, vol. 8(1), pages 1-24, March.

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    More about this item

    Keywords

    Market microstructure; Liquidity; Holding period;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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