Abstract
This paper examines stock liquidity in explaining the mixed relations between financial constraints and stock returns and the pricing of stock liquidity across financially constrained and unconstrained firms. We find a negative relation in liquid portfolios and a positive relation in illiquid portfolios. Financially constrained firms have higher liquidity risk and earn a higher illiquidity premium than unconstrained firms. Financial constraints cannot be independently priced in stock returns and can only be priced in conjunction with stock liquidity in bad economic times. Stock liquidity is independently priced for financially constrained firms or in good times, but not for unconstrained firms.
| Original language | English |
|---|---|
| Article number | 101139 |
| Number of pages | 18 |
| Journal | Journal of International Financial Markets, Institutions and Money |
| Volume | 63 |
| Early online date | 4 Nov 2019 |
| DOIs | |
| Publication status | Published - Nov 2019 |
Keywords
- Asset pricing
- financial constraints
- stock liquidity
- macroeconomic conditions