Percorrer por autor "Marotta, Pasquale"
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- Is liquidity the missing piece in asset-pricing models?Publication . Marotta, Pasquale; Faias, José Afonso de Carvalho TavaresLiquidity is usually defined as the easiness of trading an asset. Despite this fairly simple definition, many measures have been proposed throughout the years but none of them have ever received a general consensus, thus leading to different results regarding the effects of liquidity on stock returns. By adopting three commonly used proxies (the relative bid-ask spread, the proportion of daily zero returns and the turnover rate), this study attempts to identify how and if liquidity has any explanatory power of the cross-sectional variability of returns. Moreover, the study also analyzes different investment strategies based on liquidity, with the goal of understanding whether or not liquidity can also outperform market returns. Results confirm the idea that liquidity can, indeed, affect stock returns, but this is not true for all proxies. Additionally, liquidity appears to be a profitable investment style that allows investors to obtain extra-returns by also containing the riskiness of the portfolio and the transaction costs associated with the strategy.