Liquidity Risks and Asset Pricing: Evidence from Developed and Emerging Markets

Authors

  • Sadia Saeed -Department of Management Science National University of Modern Languages (NUML), Islamabad, Pakistan.
  • Saif ul Mujahid Shah Department of Economics National University of Modern Languages (NUML), Islamabad, Pakistan
  • Saadullah Shah Institute of Management Studies,University of Peshawar, Peshawar, Pakistan.

DOI:

https://doi.org/10.31384/jisrmsse/2020.18.2.5

Keywords:

Amihud ratio liquidity risks, Asset Pricing, Market liquidity, Stock market, emerging markets

Abstract

The study examines the liquidity adjusted capital asset pricing model in developed and emerging markets. Amihud measure is used to compute market liquidity. Innovations in Amihud ratio are generated through the autoregressive process to avoid autocorrelation in illiquidity data series. Decile portfolios based on illiquidity cost are formulated for each stock market. Liquidity adjusted betas are calculated at the portfolio level and then stocks as test assets have been used in the regression stage. Panel regression with fixed effect has been employed on LCAPM specifications for explaining the excess stock returns of developed and emerging markets during a period July 2005- June 2017. The findings of the study support that individual and aggregate liquidity risk price in stock markets except for Pakistan. The results of the study suggest that investors institutional or individual should consider liquidity risks for assessing the worth of assets.

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Published

2020-12-31

How to Cite

Saeed, S., Shah, S. ul M., & Shah, S. (2020). Liquidity Risks and Asset Pricing: Evidence from Developed and Emerging Markets. JISR Management and Social Sciences & Economics, 18(2), 61–80. https://doi.org/10.31384/jisrmsse/2020.18.2.5

Issue

Vol. 18 No. 2 (2020): JISR-MSSE

Section

Original Articles

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