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Why is the Amihud (2002) measure priced in Taiwan: Illiquidity or mispricing?

Author

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  • Lin, Chaonan
  • Ko, Kuan-Cheng
  • Lu, Chien-Lin

Abstract

Lou and Shu (2017) decompose the Amihud (2002) measure and show that its pricing ability is attributed to the trading volume component. Amihud and Noh (2021) claim that Lou and Shu's (2017) decomposition misses a component that is related to illiquidity, and that this illiquidity component affects stock returns significantly. This study extends Amihud and Noh's (2021) analyses to the Taiwan stock market by proposing that the imposition of price limits enhances the pricing ability of trading volume component of the Amihud (2002) measure. Our empirical results confirm this prediction, and further, indicate that the illiquidity component provides no pricing ability in Taiwan.

Suggested Citation

  • Lin, Chaonan & Ko, Kuan-Cheng & Lu, Chien-Lin, 2023. "Why is the Amihud (2002) measure priced in Taiwan: Illiquidity or mispricing?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000501
    DOI: 10.1016/j.pacfin.2023.101984
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    References listed on IDEAS

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    1. Chou, Pin-Huang & Chou, Robin K. & Ko, Kuan-Cheng & Chao, Chun-Yi, 2013. "What affects the cool-off duration under price limits?," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 256-278.
    2. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
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    4. Su, Zhi & Lyu, Tongtong & Yin, Libo, 2022. "China's illiquidity premium: Due to risk-taking or mispricing?," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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    11. Xiaoxia Lou & Tao Shu, 2017. "Price Impact or Trading Volume: Why Is the Amihud (2002) Measure Priced?," The Review of Financial Studies, Society for Financial Studies, vol. 30(12), pages 4481-4520.
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    More about this item

    Keywords

    Illiquidity; Mispricing; Cross-section of stock returns; Taiwan stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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