Stock liquidity risk and the cross-sectional earnings-returns relationship

Isshaq, Zangina and Faff, Robert (2016) Stock liquidity risk and the cross-sectional earnings-returns relationship. Journal of Business Finance and Accounting, 43 9-10: 1121-1141. doi:10.1111/jbfa.12209

Attached Files (Some files may be inaccessible until you login with your UQ eSpace credentials)
Name Description MIMEType Size Downloads

Author Isshaq, Zangina
Faff, Robert
Title Stock liquidity risk and the cross-sectional earnings-returns relationship
Journal name Journal of Business Finance and Accounting   Check publisher's open access policy
ISSN 1468-5957
Publication date 2016-10-01
Sub-type Article (original research)
DOI 10.1111/jbfa.12209
Open Access Status Not yet assessed
Volume 43
Issue 9-10
Start page 1121
End page 1141
Total pages 21
Place of publication Chichester, West Sussex, United Kingdom
Publisher Wiley-Blackwell Publishing
Language eng
Abstract We argue that a higher sensitivity to aggregate market-wide liquidity shocks (i.e., a higher liquidity risk) implies a tendency for a stock's price to converge to fundamentals. We test this intuition within the framework of the earnings-returns relationship. We find a positive liquidity risk effect on the relationship between return and expected change in earnings. This effect on the earnings-returns relationship is distinct from the negative effect observed for stock illiquidity level. Notably, the liquidity risk effect is evident (absent) during periods of neutral/low (high) aggregate market liquidity. We also show that the liquidity risk effect is dominant in firms that: (a) are of intermediate size; (b) are of intermediate book-to-market; and (c) are profit making.
Keyword Earnings-returns relationship
Stock liquidity risk
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: HERDC Pre-Audit
UQ Business School Publications
Version Filter Type
Citation counts: TR Web of Science Citation Count  Cited 1 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 1 times in Scopus Article | Citations
Google Scholar Search Google Scholar
Created: Tue, 22 Nov 2016, 11:31:53 EST by System User on behalf of Learning and Research Services (UQ Library)