Trading probability and turnover as measures of liquidity risk: evidence from the U.K. stock market
Trading probability and turnover as measures of liquidity risk: evidence from the U.K. stock market
This paper utilises monthly data from the U.K. stock market to examine possible regularities in variables (trading probability and fractional turnover) which may be (or may be hypothesised to be) associated with liquidity risk.
Modelling is based upon extensions to the CAPM involving variables closely similar to those employed in the Fama-French three factor model (albeit using Dividend Yield in place of the Book to Market ratio).
Our findings suggest that the measure of trading probability used here is a close substitute for the market capitalisation measure associated with the 'Size' effect; and that the fractional turnover variable makes a significant contribution as an addendum to a three factor model.
liquidity, trading probability, turnover
Social Science Research Network
McManus, Ian D.
4e32d128-f390-426b-9bc6-dbef9e8f19bc
Smith, Peter N.
74b4534a-c1ae-4d48-ae17-c10469bb4d61
Thomas, Steve H.
2270f13a-9531-4944-aaad-a2f89c6aff2a
2008
McManus, Ian D.
4e32d128-f390-426b-9bc6-dbef9e8f19bc
Smith, Peter N.
74b4534a-c1ae-4d48-ae17-c10469bb4d61
Thomas, Steve H.
2270f13a-9531-4944-aaad-a2f89c6aff2a
McManus, Ian D., Smith, Peter N. and Thomas, Steve H.
(2008)
Trading probability and turnover as measures of liquidity risk: evidence from the U.K. stock market
(Working Paper Series)
Social Science Research Network
Record type:
Monograph
(Working Paper)
Abstract
This paper utilises monthly data from the U.K. stock market to examine possible regularities in variables (trading probability and fractional turnover) which may be (or may be hypothesised to be) associated with liquidity risk.
Modelling is based upon extensions to the CAPM involving variables closely similar to those employed in the Fama-French three factor model (albeit using Dividend Yield in place of the Book to Market ratio).
Our findings suggest that the measure of trading probability used here is a close substitute for the market capitalisation measure associated with the 'Size' effect; and that the fractional turnover variable makes a significant contribution as an addendum to a three factor model.
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More information
Published date: 2008
Additional Information:
21st Australasian Finance and Banking Conference 2008 Paper
Tuesday 16 December - Thursday 18 December, 2008 Sydney Australia
Keywords:
liquidity, trading probability, turnover
Identifiers
Local EPrints ID: 80483
URI: http://eprints.soton.ac.uk/id/eprint/80483
PURE UUID: 1b51b0a4-b812-435d-a445-3aa2a956e0c5
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Date deposited: 24 Mar 2010
Last modified: 20 Feb 2024 17:40
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Contributors
Author:
Ian D. McManus
Author:
Peter N. Smith
Author:
Steve H. Thomas
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