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Legal regime, size, and liquidity factors in asset pricing

Legal regime, size, and liquidity factors in asset pricing
Legal regime, size, and liquidity factors in asset pricing
This study introduces a new legal regime factor into the international valuation literature which exploits the differences between civil and common law origin countries. This builds directly on the concept that institutions both build and shape culture and economic outcomes and takes account of the pervasive differences between civil and common law countries worldwide La Porta et al (1998, 2002). This study contrasts the abilities of three prominent liquidity constructs, namely Amihud (2002) price-impact, Liu (2006) trading speed and volume-based turnover, in explaining the total trading costs in a sample of 62 equity markets spanning developed and developing countries as well as aggregated worldwide civil and common law universes. The evidence reveals that differences in legal origin of markets exert a pervasive effect on the liquidity generating process that transcends institutions across markets. Furthermore a world market universe is created from the constituent stocks of the top tier equity market indices from 60 countries worldwide leading to the construction of size and liquidity returns-based factors and a new legal regime factor. The results indicate that the four-factor legal regime CAPM outperform both other pricing models.
Academy of International Business
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97

Hearn, Bruce and Piesse, Jenifer (2010) Legal regime, size, and liquidity factors in asset pricing. In Academy of International Business Annual Meeting, Rio de Janeiro, Brazil. Academy of International Business. 57 pp .

Record type: Conference or Workshop Item (Paper)

Abstract

This study introduces a new legal regime factor into the international valuation literature which exploits the differences between civil and common law origin countries. This builds directly on the concept that institutions both build and shape culture and economic outcomes and takes account of the pervasive differences between civil and common law countries worldwide La Porta et al (1998, 2002). This study contrasts the abilities of three prominent liquidity constructs, namely Amihud (2002) price-impact, Liu (2006) trading speed and volume-based turnover, in explaining the total trading costs in a sample of 62 equity markets spanning developed and developing countries as well as aggregated worldwide civil and common law universes. The evidence reveals that differences in legal origin of markets exert a pervasive effect on the liquidity generating process that transcends institutions across markets. Furthermore a world market universe is created from the constituent stocks of the top tier equity market indices from 60 countries worldwide leading to the construction of size and liquidity returns-based factors and a new legal regime factor. The results indicate that the four-factor legal regime CAPM outperform both other pricing models.

Text
WORLD Legal Regime BRAZIL CONFERENCE BH - Accepted Manuscript
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More information

Published date: 30 June 2010
Venue - Dates: Academy of International Business Annual Meeting, , Rio de Janeiro, Brazil, 2010-06-28 - 2010-07-02

Identifiers

Local EPrints ID: 423406
URI: http://eprints.soton.ac.uk/id/eprint/423406
PURE UUID: 643578a7-e88d-4c9d-8c57-f39dbdbea0df
ORCID for Bruce Hearn: ORCID iD orcid.org/0000-0001-9767-0198

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Date deposited: 21 Sep 2018 16:30
Last modified: 13 Aug 2022 02:00

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Contributors

Author: Bruce Hearn ORCID iD
Author: Jenifer Piesse

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