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Liquidity As An Asset Pricing Factor In The Uk

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  • PANAYIOTIS G. ARTIKIS

    (Department of Business Administration, University of Piraeus, 80 Karaoli and Dimitriou Street, 18532 Piraeus, Greece)

Abstract

This study examines whether there is a strong relationship between stock liquidity, which proxies for the implicit cost of trading shares, and future stock returns in an asset-pricing context in the UK stock market. The time period, 1994–2016, includes the most recent global financial crisis that drained liquidity from financial markets worldwide. Four different measures of stock liquidity are employed; the empirical findings indicate that liquidity is a systematic pricing factor and explains a significant portion of the variation in stock returns, even after the inclusion of the other traditional risk factors. The results are robust to both forms of liquidity, either as a residual effect or in its original form as a separate risk factor. Finally, for the first time quantile regression is applied, showing that the liquidity risk factor (LIQ) absorbs a significant portion of the information content of the size and value factors, while remaining independent of the momentum factor.

Suggested Citation

  • Panayiotis G. Artikis, 2018. "Liquidity As An Asset Pricing Factor In The Uk," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-24, December.
    • Handle: RePEc:wsi:jfmmix:v:06:y:2018:i:02:n:s2282717x18500081
    DOI: 10.1142/S2282717X18500081
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    Cited by:

    1. Emmanuel Dele Omopariola & Abimbola Windapo & David John Edwards & Hatem El-Gohary, 2021. "Level of Financial Performance of Selected Construction Companies in South Africa," JRFM, MDPI, vol. 14(11), pages 1-18, October.

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