Author: Sai-Pang ChanPublisher:
ISBN:
Category : Liquidity (Economics)
Languages : en
Pages : 240
Book Description
Essays on Liquidity and Stock Returns
Author: Sai-Pang ChanPublisher:
ISBN:
Category : Liquidity (Economics)
Languages : en
Pages : 240
Book Description
Empirical Essays on Stock Liquidity and Stock Return
Author: Thị Thu Hương LêEssays on Liquidity in Finance and Real Estate Markets
Author: Qingqing ChangPublisher:
ISBN:
Category :
Languages : en
Pages : 97
Book Description
This dissertation studies liquidity and its relationship with stock returns and real estate markets. Liquidity has wide ranging effects on financial markets and the financial crisis highlighted the important role played by liquidity in finance and real estate markets. The objective of this dissertation research is to examine the characteristics of liquidity in different financial markets and to study the effect of innovations in liquidity on stock return volatility. First, using high-frequency trading data on publicly-traded real estate investment trusts (REITs) and trading data on commercial real estate assets, we document the transmission of a liquidity shock from public to private markets. Furthermore we examine the relationship between liquidity in real estate markets (both public and private markets) and macroeconomic variables. We also show how the transmission mechanism differs between public and private markets. Second, using revisions to equity analyst consensus forecasts to measure cash-flow news directly, we are able to study the relationship between innovations in liquidity and stock-return volatility under the return-decomposition framework. We contend that both cash-flow news and expected return news correlate with liquidity shocks, and the cash-flow news component is a nontrivial channel through which liquidity correlates with stock returns. This dissertation research aims to fill in the gaps in the existing empirical literature on liquidity and sheds light on the important relationship between liquidity and stock returns.
Essays on Liquidity of U.S. Common Stocks
Author: Shalini NageswaranPublisher:
ISBN: 9781267435118
Category : Capital assets pricing model
Languages : en
Pages : 126
Book Description
In Chapter 1, I find that stock characteristics do predict a stock's time-varying liquidity beta, i.e. its sensitivity to market, with the effect varying according to the assumed holding period using data on 30 small, medium, and large cap stocks between 1997 and 2002. I also find that liquidity is a priced factor for stock return even after controlling for market and stock measures of risk such as estimates of market volatility and stock level volatility. In order to mitigate problems arising from a small panel, I also test the returns model with ARCH errors on a larger sample of 2000 stocks. Chapter 2 accounts for endogenous liquidity in a standard asset pricing model. Loss of liquidity, especially during times of crises, needs to be incorporated into models of financial assets so as to forecast returns correctly. To identify the effect of endogenous stock liquidity on stock returns, an instrument is constructed from the NYSE, AMEX, and NASDAQ's decimalization program, which shrunk tick sizes from one-sixteenth of a dollar to one-hundredth of a dollar. Decimalization led to an increase in liquidity by allowing for narrower bid-ask spreads. Using daily price and quote data on U.S. common stocks, I find that as stocks becomes more illiquid, their future expected returns increase. In Chapter 3, I propose two related measures for algorithmic trading constructed from the Disclosure of Order Execution Statistics data in order to study the effect of algorithmic trading on stock liquidity. The first is the average time taken to fill an order once it arrives in the market, known as fill time, and the second is the proportion of orders executed within ten seconds of order arrival at the NYSE. Since the decision to use algorithms in trading is an endogenous one, I use the NYSE's introduction of autoquotes in 2003 to identify the causal effect of algorithmic trading on a stock's liquidity. Using IV estimation, I find that a one second decrease in fill time narrows spreads by two basis points.
Essays on Stock Market Liquidity
Author: Chi-Hsiang HuangEssays on Stock Liquidity and Stock Return Predictability
Author: Gregory William EatonPublisher:
ISBN:
Category :
Languages : en
Pages : 304
Book Description
I examine the effects of stock liquidity on asset values and whether aggregate stock liquidity and other forecasting instruments predict stock market returns. In the first chapter, I use tick-size reductions in equity markets as sources of exogenous variation in liquidity to examine the causal effect of transaction costs on firm value. In contrast to the prevailing view, I find that increased liquidity has a marginal or, in some cases, negative impact on firm value. The second chapter evaluates the predictive content of aggregate liquidity for economic activity and stock returns. We decompose illiquidity into a component capturing aggregate volatility and a volatility-adjusted component and find strong evidence that the component of illiquidity uncorrelated with volatility forecasts stock market returns. The third chapter provides new evidence on the stock return forecasting performance of alternative corporate payout yields. We find that the net payout yield forecasts stock returns and generally outperforms the commonly used dividend yield. Additionally, we show that the choice of cash flow used to construct the payout yield is economically significant. An agent relying on the incorrect payout measure as a forecasting instrument is willing to pay an economically significant amount to switch to the optimal policy.
Two Essays on the Cross-section of Stock Returns
Author: Zhuo TanPublisher:
ISBN:
Category : Finance
Languages : en
Pages :
Book Description
This dissertation consists of two essays that address issues related to the cross-section of stock returns. The first essay documents that actively managed mutual funds invest disproportionately in stocks with high historical risk-adjusted returns (alpha). This alpha-chasing behavior has a destabilizing effect on stock price. Specifically, low-alpha stocks earn higher subsequent returns than high-alpha stocks up to two months following portfolio formation—i.e. alpha is not persistent, but reverses. Consistent with liquidity-based price pressure, I find that low- (high)-alpha stocks that are heavily traded by mutual funds exhibit strong subsequent return reversals. Further analysis finds that trades from a few large funds are the primary source of this trading. However, there is no evidence to support the view that herding by fund managers explains fund managers’ preference for high-alpha stocks. The reason why managers of large mutual funds chase high-alpha stocks when alpha is not persistent remains a puzzle. The second essay shows that a better measure of mispricing confirms the primary prediction of the limits-of-arbitrage hypothesis that high levels of idiosyncratic risk prevent arbitrage activity. Rather than using returns to size, B/M and momentum portfolios, I construct a mispricing measure based on the difference between a stock’s price and its intrinsic value estimated using the residual income model of Ohlson (1995). I confirm that this measure explains future returns. I then use it and idiosyncratic return volatility to proxy for mispricing and arbitrage risk, respectively. I find that expected returns to undervalued (overvalued) stocks monotonically increase (decrease) with idiosyncratic risk. These findings support the limits-of-arbitrage hypothesis and that idiosyncratic risk is an impediment to arbitrage.
Essays on Liquidity
Author: Lubomir PetrasekThree Essays on Financial Market Design, Liquidity and Long Term Equity Returns
Author: Pankaj K. JainEssays in International Asset Pricing
Author: Ying WuPublisher:
ISBN:
Category :
Languages : en
Pages : 249
Book Description
The empirical research focuses on the common risk factors in stock returns and trading activities. The first essay is titled "Asset Pricing with Extreme Liquidity Risk". Defining extreme liquidity as the tails of illiquidity for all stocks, I propose a direct measure of market-wide extreme liquidity risk and find that extreme liquidity risk is priced cross-sectionally in the U.S. equity market. From 1973 through 2011, stocks in the highest quintile of extreme liquidity risk loadings earned value-weighted average returns 6.6% per year higher than stocks in the lowest quintile. The extreme liquidity risk premium is robust to common risk factors related to size, value and momentum. The premium is different from that on aggregate liquidity risk documented in Pástor and Stambaugh (2003) as well as that based on tail risk of Kelly (2011). Extreme liquidity estimates can offer a warning sign of extreme liquidity events. Predictive regressions show that extreme liquidity measure reliably outperforms aggregate liquidity measures in predicting future market returns. Finally, I incorporate the extreme liquidity risk into Acharya and Pedersen's (2005) framework and find new supporting evidence for their liquidity-adjusted capital asset pricing model. The second essay is co-authored with Prof. Andrew Karolyi. We have developed a multi-factor returns-generating model for an international setting that captures how restrictions on investability or accessibility can matter. The model works reasonably well in a wide variety of settings. More specifically, using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over a two-decade period, we propose and test a multi-factor model that includes factor portfolios based on firm characteristics and that builds separate factors comprised of globally-accessible stocks, which we call "global factors," and of locally-accessible stocks, which we call "local factors." Our new "hybrid" multi-factor model with both global and local factors not only captures strong common variation in global stock returns, but also achieves low pricing errors and rejection rates using conventional testing procedures for a variety of regional and global test asset portfolios formed on size, value, and momentum. In the third essay, I examine the implications of the Lo and Wang (2000, 2006) mutual fund separation model in the cross-sectional behavior of global trading activity. It demonstrates that return-based factors work poorly around the world. On average across countries, market-wide turnover captures 37% of all systematic turnover components in individual stock trading, and two additional Fama and French (1993) factor turnovers increase the explanatory power by 23%. Similarly Lo and Wang's (2000) turnovers only capture on average 64% of all systematic turnover components. Using this multi-factor asset pricing-trading framework, a horserace is further performed to explore other factors in return by examining the turnover behavior of different factor mimicking portfolios. All the return-based factors capture at most 67% of the common variation in trading, suggesting that stock pricing and trading volume may not be compatible around the world. In cross-country analysis, the explanatory power of the returnbased factor model varies substantially across countries and markets, with better performance for European developed markets and China. Surprisingly, in North America, Japan and most emerging markets there are larger amounts of commonality in trading, mostly higher than 47 %, for reasons other than return motive.