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Liquidity and equity returns in Borsa Istanbul

Author

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  • Yigit Atilgan
  • K. Ozgur Demirtas
  • A. Doruk Gunaydin

Abstract

We investigate the relationship between expected returns and liquidity measures in Borsa Istanbul. To do so, we gather a wide range of illiquidity measures that can be applied to the market. Firm-level cross-sectional regressions indicate that there is a positive relationship between various illiquidity measures and one- to six-month ahead stock returns. Findings of the article are robust after using different sample periods and controlling for well-known priced factors, such as market beta, size, book-to-market ratio and momentum. The portfolio analysis reveals that stocks that are in the highest illiquidity quintile earn 7.2%–19.2% higher risk-adjusted annual returns than those in the lowest illiquidity quintile. The illiquidity premium is stronger for small stocks and stocks with higher return volatility and it increases (decreases) during periods of extremely low (high) market returns.

Suggested Citation

  • Yigit Atilgan & K. Ozgur Demirtas & A. Doruk Gunaydin, 2016. "Liquidity and equity returns in Borsa Istanbul," Applied Economics, Taylor & Francis Journals, vol. 48(52), pages 5075-5092, November.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:52:p:5075-5092
    DOI: 10.1080/00036846.2016.1170935
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    Cited by:

    1. Chia-Cheng Chen & Chia-Li Tai & Yi-Chun Cho, 2019. "Market Illiquidity Premium on Stock Returns: An Empirical Study of Taiwan Stock Markets," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(7), pages 778-788, July.
    2. Alkan, Ulas & Guner, Biliana, 2018. "Preferences for lottery stocks at Borsa Istanbul," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 211-223.

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