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Investors' Compensation for Illiquidity - Evidence from the German Stock Market

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Reference

Bank, M., Larch, M., & Peter, G. (2012). Investors' Compensation for Illiquidity - Evidence from the German Stock Market. International Journal of Economic Research, 9(2), 381-408. (ABDC_2016: C; ABDC_2019: C)

Publication type

Article in Scientific Journal

Abstract

This paper examines whether illiquidity is a determinant of monthly stock returns in the German market. Estimating time-series and cross-sectional models, we investigate the impact of illiquidity both on market returns and on individual stock returns. Illiquidity is approximated by five measures that capture trading activity, trading costs and the price impact of order flow. Our results suggest that average market and individual stock returns are a positive function of "expected" illiquidity, while "unexpected" illiquidity has a negative impact on contemporaneous returns. Illiquidity should therefore be regarded as a determinant of returns for German stocks.

Persons

Organizational Units

  • Chair in Business Administration, Banking and Financial Management