Financial Constraints, Stock Liquidity, and Stock Returns PDF Download

Author: Xiafei Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 45

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Book Description
This paper examines stock liquidity in explaining the mixed relations between financial constraints and stock returns and the pricing of stock liquidity across financially constrained and unconstrained firms. We find a negative relation in liquid portfolios and a positive relation in illiquid portfolios. Financially constrained firms have higher liquidity risk and earn a higher illiquidity premium than unconstrained firms. Financial constraints cannot be independently priced in stock returns and can only be priced in conjunction with stock liquidity in bad economic times. Stock liquidity is independently priced for financially constrained firms or in good times, but not for unconstrained firms.

Author: François-Serge Lhabitant
Publisher: John Wiley & Sons
ISBN: 0470181699
Category : Business & Economics
Languages : en
Pages : 502

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Book Description
Brings together today's best financial minds across the world to discuss the issue of liquidity in today's markets. It is often proxied by trade-based measures (such as trading volume, frequency of trading, dollar value of shares trade, etc), order based measures and price impact measures.

Author: Jiang Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 44

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Book Description
We develop a model to explore the effects of firms being buyers of last resort on stock returns and liquidity. Those with more ability to repurchase shares when prices drop far below fundamental value (less financially constrained ones) should have lower short horizon relative to long-horizon return variance and more positively skewed returns than other firms. Using standard proxies for financing constraints such as past repurchases and firm age, we find support for both of these predicted relations in the U.S. stock market. Consistent with our theory, these relations are stronger in the U.S. after 1982 when regulatory reforms lowered the legal cost of conducting repurchases; and among the ten largest stock markets in the world, they are stronger in countries where share repurchases are legally easier to execute. Using data on bid-ask spreads and price impact costs, we also find some support for the proposition that firm intervention makes it less risky for other traders to provide liquidity for its stock.

Author: Fernando Restoy
Publisher:
ISBN:
Category : Rate of return
Languages : en
Pages : 36

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Book Description

Author: Turan G. Bali
Publisher: John Wiley & Sons
ISBN: 1118095049
Category : Business & Economics
Languages : en
Pages : 517

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Book Description
“Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.

Author: Jaehoon Hahn
Publisher:
ISBN:
Category :
Languages : en
Pages : 43

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Book Description
Theories of capital market imperfections have strong cross-sectional implications not only for corporate investment, but also for asset prices. Motivated by these theories, we develop a hypothesis about a differential effect of debt capacity on stock returns across financially constrained and unconstrained firms, based on a model of corporate investment under collateral constraints. The findings strongly support the hypothesis. Debt capacity is positively associated with stock returns in the cross section of financially constrained firms, after controlling for theoretical and empirical risk proxies such as beta, size, book-to-market, and momentum. The positive marginal impact of debt capacity is also economically significant. In contrast, debt capacity has no systematic relation with the cross section of financially unconstrained firms' stock returns. The results are robust to the way in which firms are classified into constrained and unconstrained groups and to the way in which debt capacity is measured. The findings suggest that cross-sectional differences in corporate investment behavior arising from financial constraints, predicted by theories of imperfect capital markets and supported by empirical evidence, are reflected in the stock returns of manufacturing firms.

Author: Ľuboš Pástor
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 56

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Book Description
This study investigates whether market-wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34-year period, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors.

Author: Yakov Amihud
Publisher: Cambridge University Press
ISBN: 1139560158
Category : Business & Economics
Languages : en
Pages : 293

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Book Description
This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.

Author: Carole Comerton-Forde
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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Book Description
We use an 11-year panel of daily specialist revenues on individual NYSE stocks to explore the relationship between market-maker revenues and liquidity. If market makers suffer substantial trading losses, lenders may respond by increasing funding costs or reducing credit lines, and market makers should respond by reducing liquidity provision. The data indicate that when specialists in aggregate lose money on their inventories, market-wide effective spreads widen in the days or weeks that follow, even after controlling for stock returns, volatility, and volume. This suggests an important role for market-maker financial performance in explaining liquidity time-variation. Revenues at the specialist firm level explain liquidity changes in that firm's assigned stocks. Revenues at the individual stock level do not explain changes in individual stock liquidity, consistent with a financial constraints model with broadly diversified intermediaries. Aggregate specialist revenues are increasing in conditional return volatility, as is revenue volatility. Specialist margins (specialist revenue per dollar of trading volume) are essentially constant across stocks, implying limited scope for cross-subsidization.

Author: Thierry Foucault
Publisher: Oxford University Press
ISBN: 0197542069
Category : Capital market
Languages : en
Pages : 531

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Book Description
"The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--