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

    Research output: Contribution to journalArticleResearchpeer-review

    17 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 - 2013

    Cite this

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    title = "Liquidity in asset pricing: New Australian evidence using low-frequency data",
    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.",
    author = "Daniel Chai and Robert Faff and Philip Gharghori",
    year = "2013",
    doi = "10.1177/0312896213489143",
    language = "English",
    volume = "38",
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    journal = "Australian Journal of Management",
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    Liquidity in asset pricing: New Australian evidence using low-frequency data. / Chai, Daniel; Faff, Robert; Gharghori, Philip.

    In: Australian Journal of Management, Vol. 38, No. 2, 2013, p. 375 - 400.

    Research output: Contribution to journalArticleResearchpeer-review

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    AU - Faff, Robert

    AU - Gharghori, Philip

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    AB - 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.

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