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Free float and market liquidity around the world

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  • Ding, Xiaoya (Sara)
  • Ni, Yang
  • Zhong, Ligang

Abstract

We investigate the relationship between free float and stock market liquidity using a sample covering 55 countries from 2003 to 2011. We find that stocks with higher free float have a higher level of liquidity. The relationship between free float and liquidity is evident in all regions regardless of the degree of economic development or geographic location and is more pronounced when the legal structure and corporate governance environment are strong. We present evidence that free float can mitigate liquidity dry-ups when there are large shocks to market liquidity, such as during the recent financial crisis. Finally, our study finds that higher free float is associated with lower liquidity risk. The paper suggests that liquidity can be a significant channel through which free float may affect stocks' expected returns.

Suggested Citation

  • Ding, Xiaoya (Sara) & Ni, Yang & Zhong, Ligang, 2016. "Free float and market liquidity around the world," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 236-257.
  • Handle: RePEc:eee:empfin:v:38:y:2016:i:pa:p:236-257
    DOI: 10.1016/j.jempfin.2016.07.002
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    2. Chia, Yee-Ee & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "More shareholders, higher liquidity? Evidence from an emerging stock market," Emerging Markets Review, Elsevier, vol. 44(C).
    3. Meles, Antonio & Salerno, Dario, 2020. "Abnormal operating performance in IPOs: Does public float matter?," International Review of Financial Analysis, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Free float; Liquidity; Liquidity risk; Strategic shareholder; Financial crisis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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