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Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication

Author

Listed:
  • Harris, Larry
  • Amato, Andrea

Abstract

This paper replicates and extends the Amihud (2002) study that links liquidity to asset pricing. Using the current version of the CRSP dataset, we obtain essentially the same results that Amihud presents. The same methods applied to more recent data show a much weaker relation between liquidity and asset pricing. Finally, we compare the explanatory power of Amihud’s illiquidity measure to that of other simple measures that use the same data for their calculation. We find that the Amihud illiquidity measure is no better than substantially simpler measures.

Suggested Citation

  • Harris, Larry & Amato, Andrea, 2019. "Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication," Critical Finance Review, now publishers, vol. 8(1-2), pages 173-202, December.
    • Handle: RePEc:now:jnlcfr:104.00000058
    DOI: 10.1561/104.00000058
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    Citations

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    Cited by:

    1. Ruenzi, Stefan & Ungeheuer, Michael & Weigert, Florian, 2020. "Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications," Journal of Banking & Finance, Elsevier, vol. 115(C).
    2. Stereńczak, Szymon & Zaremba, Adam & Umar, Zaghum, 2020. "Is there an illiquidity premium in frontier markets?," Emerging Markets Review, Elsevier, vol. 42(C).
    3. Cakici, Nusret & Zaremba, Adam, 2021. "Liquidity and the cross-section of international stock returns," Journal of Banking & Finance, Elsevier, vol. 127(C).

    More about this item

    Keywords

    Liquidity; Asset Pricing; Replication Studies; Price-Volume Relations; Transaction Costs;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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