Liquidity in asset pricing: New Australian evidence using low-frequency data

Daniel Chai, Robert Faff*, Philip Gharghori

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)

Abstract

Employing a new proxy for liquidity, this paper examines its impact on stock returns in the context of the Fama-French framework. We augment the Carhart four-factor model with a liquidity factor in our asset pricing tests. Using an extensive dataset drawn from the Australian equities market, we find that liquidity explains a portion of the common variation in stock returns even after controlling for size, book-to-market and momentum. However, our findings suggest that the liquidity factor only adds marginal explanatory power to contemporary asset pricing models.

Original languageEnglish
Pages (from-to)375-400
Number of pages26
JournalAustralian Journal of Management
Volume38
Issue number2
DOIs
Publication statusPublished - Aug 2013
Externally publishedYes

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