Stock Liquidity and Return Predictability; Is There a Connec-tion? (Evidence from an Emerging Market)

Advances in Mathematical Finance and Applications

مقاله 15، دوره 8، شماره 3، مهر 2023، صفحه 985-1006   

نوع مقاله: َApplied-Research Paper

شناسه دیجیتال (DOI): 10.22034/amfa.2022.1957711.1744

نویسندگان

Mojtaba Alifamian^{* 1}؛ Ali Eshaghzade²؛ Abdolkarim Maleknia¹

¹Department of Accounting, Allameh Tabatabai University, Tehran, Iran

²Department of Finance, Petroleum University of Technology, Tehran, Iran

چکیده

This study examines the relationship between stock liquidity and return predicta-bility of 116 publicly-traded firms in Tehran Stock Exchange (TSE). To this end, we constructed a dated-regular frequency of time series with total 40128 stock-firm observations. After calculating daily bid-ask spreads and stock returns, the observations were classified based on liquidity into three classes and the return predictability was investigated across different classes using a set of parametric tests. The results exhibit signs of return autocorrelation and non-independence over three liquidity groups. Our findings didn’t show a connection between stock liquidity and market efficiency. The Hurst exponent also revealed mean reversion of returns series across different liquidity classes. We conclude that stock liquidity doesn’t play a significant role in market efficiency and return predictability of stocks in TSE. In case of TSE as other emerging markets, due to the small num-ber of traders (the need for more trading activity) and low market making activi-ties, both the cost of trading increases and the reaction to stock price information is delayed, resulting in predictability of price /return.

کلیدواژه‌ها

Liquidity؛ Spread؛ Return Predictability؛ Market Efficiency؛ Tehran Stock Exchange

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