Liquidity and expected returns
Subtitle: lessons from emerging markets
By: Geert Bekaert, Campbell R. Harvey, Christian Lundblad.
Contributors: Harvey, Campbell R.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11413; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11413.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Stocks.; Liquidity (Economics); Capital assets pricing model.
Description: "Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the impact of liquidity on expected returns.  Our main liquidity measure is a transformation of the proportion of zero daily firm returns, averaged over the month.  We find that our liquidity measures significantly predict future returns, whereas alternative measures such as turnover do not.  Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with contemporaneous return shocks and negatively correlated with shocks to the dividend yield.  We consider a simple asset pricing model with liquidity and the market portfolio as risk factors and transaction costs that are proportional to liquidity.  The model differentiates between integrated and segmented countries and periods.  Our results suggest that local market liquidity is an important driver of expected returns in emerging markets, and that the liberalization process has not eliminated its impact"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 7/12/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.