Liquidity and stock returns in Japan : new evidence

Yuk Ying Chang; Robert Faff; Chuan-Yang Hwang

doi:10.1016/j.pacfin.2009.09.001

Liquidity and stock returns in Japan : new evidence

Yuk Ying Chang, Robert Faff, Chuan-Yang Hwang

Research output: Contribution to journal › Article › peer-review

Abstract

The liquidity/stock returns linkage was studied using data from the First Section, the Second Section, and the Mothers Section of the Tokyo Stock Exchange (TSE). In our overall tests, we found a significantly negative (positive) relationship between liquidity (illiquidity) proxies and returns. Upon exploring this further for the impact of business cycles, we found that while the expansionary phases largely confirm the overall finding, contractionary phases do not. When we controlled for liquidity variability in the cross-sectional regressions, the role of the liquidity level showed strong significance across business cycles, different subperiods and all Sections of the TSE. With regard to liquidity variability, we observed a strongly significant and negative association with stock returns.

Original language	English
Pages (from-to)	90-115
Number of pages	26
Journal	Pacific Basin Finance Journal
Volume	18
Issue number	1
DOIs	https://doi.org/10.1016/j.pacfin.2009.09.001
Publication status	Published - 2010

Keywords

Japan
Tōkyō Shōken Torihikijo
business cycles
liquidity (economics)
stock returns

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10.1016/j.pacfin.2009.09.001

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title = "Liquidity and stock returns in Japan : new evidence",

abstract = "The liquidity/stock returns linkage was studied using data from the First Section, the Second Section, and the Mothers Section of the Tokyo Stock Exchange (TSE). In our overall tests, we found a significantly negative (positive) relationship between liquidity (illiquidity) proxies and returns. Upon exploring this further for the impact of business cycles, we found that while the expansionary phases largely confirm the overall finding, contractionary phases do not. When we controlled for liquidity variability in the cross-sectional regressions, the role of the liquidity level showed strong significance across business cycles, different subperiods and all Sections of the TSE. With regard to liquidity variability, we observed a strongly significant and negative association with stock returns.",

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T1 - Liquidity and stock returns in Japan : new evidence

AU - Chang, Yuk Ying

AU - Faff, Robert

AU - Hwang, Chuan-Yang

PY - 2010

Y1 - 2010

N2 - The liquidity/stock returns linkage was studied using data from the First Section, the Second Section, and the Mothers Section of the Tokyo Stock Exchange (TSE). In our overall tests, we found a significantly negative (positive) relationship between liquidity (illiquidity) proxies and returns. Upon exploring this further for the impact of business cycles, we found that while the expansionary phases largely confirm the overall finding, contractionary phases do not. When we controlled for liquidity variability in the cross-sectional regressions, the role of the liquidity level showed strong significance across business cycles, different subperiods and all Sections of the TSE. With regard to liquidity variability, we observed a strongly significant and negative association with stock returns.

AB - The liquidity/stock returns linkage was studied using data from the First Section, the Second Section, and the Mothers Section of the Tokyo Stock Exchange (TSE). In our overall tests, we found a significantly negative (positive) relationship between liquidity (illiquidity) proxies and returns. Upon exploring this further for the impact of business cycles, we found that while the expansionary phases largely confirm the overall finding, contractionary phases do not. When we controlled for liquidity variability in the cross-sectional regressions, the role of the liquidity level showed strong significance across business cycles, different subperiods and all Sections of the TSE. With regard to liquidity variability, we observed a strongly significant and negative association with stock returns.

KW - Japan

KW - Tōkyō Shōken Torihikijo

KW - business cycles

KW - liquidity (economics)

KW - stock returns

UR - http://handle.uws.edu.au:8081/1959.7/uws:30181

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DO - 10.1016/j.pacfin.2009.09.001

M3 - Article

SN - 0927-538X

VL - 18

SP - 90

EP - 115

JO - Pacific Basin Finance Journal

JF - Pacific Basin Finance Journal

IS - 1

ER -

Liquidity and stock returns in Japan : new evidence

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Keywords

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