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Liquidity and the cross-section of international stock returns

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  • Cakici, Nusret
  • Zaremba, Adam
Abstract
We perform a comprehensive investigation of the illiquidity premium in international stock markets. We examine several established liquidity measures in 45 countries for the years 1990–2020. Our findings provide convincing evidence that liquidity pricing depends strongly on firm size. Although the premium is globally present, it exists only among microcap stocks, which have negligible economic significance. Outside the microcap universe, virtually no liquidity effect can be observed.

Suggested Citation

  • Cakici, Nusret & Zaremba, Adam, 2021. "Liquidity and the cross-section of international stock returns," Journal of Banking & Finance, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:jbfina:v:127:y:2021:i:c:s0378426621000819
    DOI: 10.1016/j.jbankfin.2021.106123
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    Cited by:

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    8. Zhao, Wandi & Gao, Yang & Wang, Mingjin, 2022. "Measuring liquidity with return volatility: An analytical approach based on heavy-tailed Censored-GARCH model," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    9. Gong, Yuting & He, Zhongzhi & Xue, Wenjun, 2022. "EPU spillovers and stock return predictability: A cross-country study," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
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    More about this item

    Keywords

    Illiquidity premium; Liquidity effect; International markets; Microcaps; Amihud's measure; Turnover ratio; Bid-ask spread; Zero-return days; Asset pricing; Return predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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