Illiquidity and Stock Returns: Empirical Evidence from the Stockholm Stock Exchange

Detta är en D-uppsats från Handelshögskolan i Stockholm/Institutionen för redovisning och finansiering

Sammanfattning: In this paper we use a quantitative method to study if illiquidity contributes to explaining variations in stock returns across stocks and across time on the Stockholm Stock Exchange during the period 1990-2010. We find support for the hypothesis that excess stock market returns increase with the expected illiquidity of the stock market. In addition, we find that unexpected increases in stock market illiquidity have a negative effect on contemporaneous stock prices. We find limited support for a cross-sectional relationship between illiquidity and cross-sectional risk-adjusted returns. The relationship appears to be stronger for stocks of smaller firms than for larger firms and also appears to have become weaker over the time period of our sample. The linkage between stock illiquidity and returns is well documented in the asset pricing literature, but research has primarily been conducted on American stock exchanges. The idea behind an illiquidity factor in asset pricing is that investors should not only require compensation for the risk of holding capital assets but also for the costs of trading capital assets.

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