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Systematic liquidity in the long run

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  • Charly Sujoto
  • Petko Kalev
  • Robert Faff

Abstract

In this article we develop a long-run systematic liquidity measure by augmenting the standard model with a lagged dependent variable. Our empirical application involves a large sample of Australian equities and we find pervasive evidence of long-run commonality in liquidity. We also find evidence of a mean reversion tendency for time-varying liquidity beta. This result implies that the liquidity movement in the stock market maybe more influenced by noise traders’ activity rather than informed traders' activity.

Suggested Citation

  • Charly Sujoto & Petko Kalev & Robert Faff, 2008. "Systematic liquidity in the long run," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 187-191.
    • Handle: RePEc:taf:raflxx:v:4:y:2008:i:3:p:187-191
    DOI: 10.1080/17446540701591357
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