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Illiquidity and Stock Returns

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  • Mooradian, Robert M.

Abstract

A quarterly time series of the aggregate commission rate of NYSE trading for the period 1980-2003 is developed. The aggregate commission rate is of significant size, captures trading cost, and reflects market illiquidity. Consistent with financial theory, I find a positive relation between market returns and the aggregate commission rate. The impact of the aggregate commission rate on market returns survives a number of robustness checks and is significant after controlling for interest-rate factors, trading volume, and the variability of trading volume. Overall, the findings suggest that market-wide liquidity is a state variable important for asset pricing.

Suggested Citation

  • Mooradian, Robert M., 2010. "Illiquidity and Stock Returns," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 6(1-2), pages 1-19, April.
    • Handle: RePEc:ags:reapec:143268
    DOI: 10.22004/ag.econ.143268
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    References listed on IDEAS

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