Liquidity commonality and pricing in UK equities

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dc.contributor.authorForan, Jason
dc.contributor.authorHutchinson, Mark C.
dc.contributor.authorO'Sullivan, Niall
dc.date.accessioned2016-04-21T09:30:08Z
dc.date.available2016-04-21T09:30:08Z
dc.date.issued2015-01
dc.date.updated2015-02-02T18:58:49Z
dc.description.abstractWe investigate the pricing of systematic liquidity risk in UK equities using a large sample of daily data. Employing four alternative measures of liquidity we first find strong evidence of commonality in liquidity across stocks. We apply asymptotic principal component analysis (PCA) on the sample of stocks to extract market or systematic liquidity factors. Previous research on systematic liquidity risk, estimated using PCA, is focused on the US, which has very different market structures to the UK. Our pricing results indicate that systematic liquidity risk is positively priced in the cross-section of stocks, specifically for the quoted spread liquidity measure. These findings around the pricing of systematic liquidity risk are not affected by the level of individual stock liquidity as a risk characteristic. However, counter-intuitively, we find that the latter is negatively priced in the cross-section of stocks, confirming earlier research.en
dc.description.statusPeer revieweden
dc.description.versionAccepted Versionen
dc.format.mimetypeapplication/pdfen
dc.identifier.citationFORAN, J., HUTCHINSON, M. C. & O'SULLIVAN, N. 2015. Liquidity commonality and pricing in UK equities. Research in International Business and Finance, 34, 281-293. doi:10.1016/j.ribaf.2015.02.006en
dc.identifier.doi10.1016/j.ribaf.2015.02.006
dc.identifier.endpage293en
dc.identifier.issn0275-5319
dc.identifier.journaltitleResearch in International Business and Financeen
dc.identifier.startpage281en
dc.identifier.urihttps://hdl.handle.net/10468/2473
dc.identifier.volume34en
dc.language.isoenen
dc.publisherElsevier B.V.en
dc.rightsCopyright © 2015 Elsevier Inc. All rights reserved. This manuscript is made available under the CC-BY-NC-ND 4.0 license. https://creativecommons.org/licenses/by-nc-nd/4.0/en
dc.rights.urihttps://creativecommons.org/licenses/by-nc-nd/4.0/en
dc.subjectLiquidity pricingen
dc.subjectLiquidity risken
dc.subjectCommonalityen
dc.titleLiquidity commonality and pricing in UK equitiesen
dc.typeArticle (peer-reviewed)en
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