Stock returns and the volatility of liquidity
| Autor(a) principal: | |
|---|---|
| Data de Publicação: | 2010 |
| Outros Autores: | |
| Tipo de documento: | Artigo |
| Idioma: | eng |
| Título da fonte: | Repositórios Científicos de Acesso Aberto de Portugal (RCAAP) |
| Texto Completo: | https://ciencia.iscte-iul.pt/public/pub/id/10633 http://hdl.handle.net/10071/6739 |
Resumo: | This paper offers a rational explanation for the puzzling empirical fact that stock returns decrease with an increase in the volatility of liquidity. We model liquidity as a stochastic price impact process and define the liquidity premium as the additional return necessary to compensate a multiperiod investor for the adverse price impact of trading. The model demonstrates that a fully rational, utility maximizing, risk-averse investor can take advantage of time-varying liquidity by adapting his trades to the state of liquidity. We provide new empirical evidence supportive of the model. |
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Stock returns and the volatility of liquidityThis paper offers a rational explanation for the puzzling empirical fact that stock returns decrease with an increase in the volatility of liquidity. We model liquidity as a stochastic price impact process and define the liquidity premium as the additional return necessary to compensate a multiperiod investor for the adverse price impact of trading. The model demonstrates that a fully rational, utility maximizing, risk-averse investor can take advantage of time-varying liquidity by adapting his trades to the state of liquidity. We provide new empirical evidence supportive of the model.Cambridge University Press2014-03-25T16:41:53Z2010-01-01T00:00:00Z20102014-03-25T16:36:50Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttps://ciencia.iscte-iul.pt/public/pub/id/10633http://hdl.handle.net/10071/6739eng0022-1090Pereira, J.Zhang, H.info:eu-repo/semantics/openAccessreponame:Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)instname:FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologiainstacron:RCAAP2024-07-07T02:36:15Zoai:repositorio.iscte-iul.pt:10071/6739Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireinfo@rcaap.ptopendoar:https://opendoar.ac.uk/repository/71602025-05-28T18:01:44.010305Repositórios Científicos de Acesso Aberto de Portugal (RCAAP) - FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologiafalse |
| dc.title.none.fl_str_mv |
Stock returns and the volatility of liquidity |
| title |
Stock returns and the volatility of liquidity |
| spellingShingle |
Stock returns and the volatility of liquidity Pereira, J. |
| title_short |
Stock returns and the volatility of liquidity |
| title_full |
Stock returns and the volatility of liquidity |
| title_fullStr |
Stock returns and the volatility of liquidity |
| title_full_unstemmed |
Stock returns and the volatility of liquidity |
| title_sort |
Stock returns and the volatility of liquidity |
| author |
Pereira, J. |
| author_facet |
Pereira, J. Zhang, H. |
| author_role |
author |
| author2 |
Zhang, H. |
| author2_role |
author |
| dc.contributor.author.fl_str_mv |
Pereira, J. Zhang, H. |
| description |
This paper offers a rational explanation for the puzzling empirical fact that stock returns decrease with an increase in the volatility of liquidity. We model liquidity as a stochastic price impact process and define the liquidity premium as the additional return necessary to compensate a multiperiod investor for the adverse price impact of trading. The model demonstrates that a fully rational, utility maximizing, risk-averse investor can take advantage of time-varying liquidity by adapting his trades to the state of liquidity. We provide new empirical evidence supportive of the model. |
| publishDate |
2010 |
| dc.date.none.fl_str_mv |
2010-01-01T00:00:00Z 2010 2014-03-25T16:41:53Z 2014-03-25T16:36:50Z |
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info:eu-repo/semantics/publishedVersion |
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info:eu-repo/semantics/article |
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article |
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publishedVersion |
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https://ciencia.iscte-iul.pt/public/pub/id/10633 http://hdl.handle.net/10071/6739 |
| url |
https://ciencia.iscte-iul.pt/public/pub/id/10633 http://hdl.handle.net/10071/6739 |
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eng |
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eng |
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0022-1090 |
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info:eu-repo/semantics/openAccess |
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openAccess |
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application/pdf |
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Cambridge University Press |
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Cambridge University Press |
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info@rcaap.pt |
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