Liquidity and Cross-Sectional Variation in Stock Returns: An Emerging Market Study
AbstractThe study investigates the existence of liquidity premiums and the relationship between liquidity and equity returns in Pakistan. We estimate stock liquidity using three different measures: stock turnover, illiquidity cost following Amihud (2002), and liquidity beta following Pastor and Stambaugh (2003). For the non-financial firms listed on Pakistan Stock Exchange, we conduct asset pricing tests including liquidity factor in addition to the well-known factors of market, size, book-to-market and momentum. We report significant market, size, BM, momentum, and liquidity premiums in Pakistan’s equity market. Further, the relationship between liquidity factor and stock returns is not consistent for the different liquidity measures used. We document a positive relationship between stock turnover and returns; however, a negative relationship between liquidity and returns is confirmed using the Amihud illiquidity cost and Pastor and Stambaugh liquidity beta.
How to Cite
TAUSEEF , Sana. Liquidity and Cross-Sectional Variation in Stock Returns: An Emerging Market Study . Business & Economic Review, [S.l.], v. 13, n. 2, p. 57-86, apr. 2021. ISSN 2519-1233. Available at: <https://bereview.pk/index.php/BER/article/view/387>. Date accessed: 18 jan. 2022.