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Turnover: Liquidity or Uncertainty?

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  • Alexander Barinov

    () (Terry College of Business, University of Georgia, Athens, Georgia 30602)

Abstract

I show that turnover is unrelated to several alternative measures of liquidity risk and in most cases negatively, not positively, related to liquidity. Consequently, neither liquidity nor liquidity risk explains why higher turnover predicts lower future returns. I find that the aggregate volatility risk factor explains why higher turnover predicts lower future returns. This paper shows that the negative relation between turnover and future returns is stronger for firms with option-like equity, and this regularity is also explained by the aggregate volatility risk factor. This paper was accepted by Wei Jiang, finance.

Suggested Citation

  • Alexander Barinov, 2014. "Turnover: Liquidity or Uncertainty?," Management Science, INFORMS, vol. 60(10), pages 2478-2495, October.
  • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:10:p:2478-2495
    DOI: 10.1287/mnsc.2014.1913
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    File URL: http://dx.doi.org/10.1287/mnsc.2014.1913
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    References listed on IDEAS

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    Cited by:

    1. Barinov, Alexander, 2017. "Institutional ownership and aggregate volatility risk," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 20-38.
    2. Lim, Kian-Ping & Thian, Tze-Chung & Hooy, Chee-Wooi, 2017. "Investor heterogeneity, trading account types and competing liquidity channels for Malaysian stocks," Research in International Business and Finance, Elsevier, vol. 41(C), pages 220-234.
    3. Cao, Viet Nga & Gray, Philip & Zhong, Angel, 2019. "Investment-related anomalies in Australia: Evidence and explanations," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 97-109.
    4. Barinov, Alexander & Wu, Juan (Julie), 2014. "High short interest effect and aggregate volatility risk," Journal of Financial Markets, Elsevier, vol. 21(C), pages 98-122.
    5. Qian, Meifen & Sun, Ping-Wen & Yu, Bin, 2017. "High turnover with high price delay? Dissecting the puzzling phenomenon for China's A-shares," Finance Research Letters, Elsevier, vol. 22(C), pages 105-113.
    6. Muhammad Sadil Ali & Shujahat Haider Hashmi, 2018. "Impact of Institutional Ownership on Stock Liquidity: Evidence from Karachi Stock Exchange, Pakistan," Global Business Review, International Management Institute, vol. 19(4), pages 939-951, August.
    7. Ramos, Henrique Pinto & Righi, Marcelo Brutti, 2020. "Liquidity, implied volatility and tail risk: A comparison of liquidity measures," International Review of Financial Analysis, Elsevier, vol. 69(C).
    8. Bing Zhu & Stanimira Milcheva, 2020. "The Pricing of Spatial Linkages in Companies’ Underlying Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 61(3), pages 443-475, October.
    9. Kotaro Miwa, 2019. "Short-Term Return Reversals and Intraday Transactions," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-25, March.
    10. Hauser, Shmuel & Kedar-Levy, Haim, 2018. "Liquidity might come at cost: The role of heterogeneous preferences," Journal of Financial Markets, Elsevier, vol. 39(C), pages 1-23.
    11. Cheng, Hang & Shi, Yongdong, 2020. "Forecasting China's stock market variance," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    12. Dang, Viet Anh & Michayluk, David & Pham, Thu Phuong, 2018. "The curious case of changes in trading dynamics: When firms switch from NYSE to NASDAQ," Journal of Financial Markets, Elsevier, vol. 41(C), pages 17-35.
    13. Twu, Mia & Wang, Jianxin, 2018. "Call auction frequency and market quality: Evidence from the Taiwan Stock Exchange," Journal of Asian Economics, Elsevier, vol. 57(C), pages 53-62.

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