Sell-order liquidity and the cross-section of expected stock returns

Michael J. Brennan; Tarun Chordia; Avanidhar Subrahmanyam; Qing Tong

doi:10.1016/j.jfineco.2012.04.006

Sell-order liquidity and the cross-section of expected stock returns

Michael J. Brennan, Tarun Chordia, Avanidhar Subrahmanyam, Qing Tong

A&F Accounting & Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility. © 2012 Elsevier B.V.

Original language	English
Pages (from-to)	523-541
Number of pages	18
Journal	Journal of Financial Economics
Volume	105
Issue number	3
DOIs	https://doi.org/10.1016/j.jfineco.2012.04.006
Publication status	Published - Sept 2012

Keywords

Asset pricing
Liquidity

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10.1016/j.jfineco.2012.04.006

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abstract = "We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility. {\textcopyright} 2012 Elsevier B.V.",

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AU - Chordia, Tarun

AU - Subrahmanyam, Avanidhar

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AB - We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility. © 2012 Elsevier B.V.

KW - Asset pricing

KW - Liquidity

U2 - 10.1016/j.jfineco.2012.04.006

DO - 10.1016/j.jfineco.2012.04.006

M3 - Article

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SP - 523

EP - 541

JO - Journal of Financial Economics

JF - Journal of Financial Economics

IS - 3

ER -

Sell-order liquidity and the cross-section of expected stock returns

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Keywords

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