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Conditional stock liquidity premium: is Warsaw stock exchange different?

Author

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  • Szymon Stereńczak

Abstract

Purpose - This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach - Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings - The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value - This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

Suggested Citation

  • Szymon Stereńczak, 2021. "Conditional stock liquidity premium: is Warsaw stock exchange different?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 38(1), pages 67-85, January.
    • Handle: RePEc:eme:sefpps:sef-03-2020-0075
    DOI: 10.1108/SEF-03-2020-0075
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    More about this item

    Keywords

    Liquidity premium; Warsaw stock exchange; Drivers of liquidity premium; Liquidity costs; Pricing of liquidity; G11; G12;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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