Disentangling Liquidity and Size Effects in Stock Returns: Evidence from China
Higher liquidity of large stocks may be an important reason for their relatively lower expected returns. However it is generally difficult to disentangle the liquidity effect and the genuine size-return relation unrelated to liquidity. The Chinese stock market offers a unique opportunity to address this issue due to the coexistence of tradable and nontradable shares in most Chinese listed companies. While the size of tradable shares is inextricably linked to liquidity, the size of nontradable shares is not. Our analysis shows that the size effect of tradable shares on stock returns is more than twice as strong as that of nontradable shares, indicating that a substantial component of the negative correlation between expected returns and firm size, as normally measured by tradable shares, can be attributed to liquidity. We also find that despite many special features of the market environment, Chinese stock returns exhibit cross-sectional patterns strikingly similar to those documented for developed markets.
Rong Cui Youchang Wu
Department of Finance, University of Vienna, Bruennerstrasse 72, 1210 Vienna, Austria
国际会议
成都
英文
1-39
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）