Liquidity and stock expected returns
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DOI: 10.23977/edms.2019.012
Corresponding Author
Yidi Zhao
ABSTRACT
This paper constructs an illiquid comprehensive factor by principal component analysis to test the relationship between the liquidity risk of China's A-share market and the expected return of stocks from 2003 to 2018. We employ the procedure proposed by Fama and Macbeth (1973) and make a cross-sectional regression of the portfolio. It is concluded that there is liquidity premium in China's a-share market, and the pricing power of liquidity risk is stronger than that of liquidity level.
KEYWORDS
Liquidity risk, Expected returns, Principal component analysis
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