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Liquidity risk and stock returns around the world

  • Liang, Samuel Xin
  • Wei, John K.C.
Registered author(s):

    The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there are less insider trading activities. We also discover that global liquidity risk is a significant pricing factor across all developed country market portfolios after controlling for global market, value, and size factors. The contribution of this risk to the return on a country market portfolio is economically and statistically significant within and across regions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426612002014
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 12 ()
    Pages: 3274-3288

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3274-3288
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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