Sell-order liquidity and the cross-section of expected stock returns | Zendy

Michael J. Brennan | Zendy; Tarun Chordia | Zendy; Avanidhar Subrahmanyam | Zendy; Qing Tong | Zendy

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Sell-order liquidity and the cross-section of expected stock returns

Author(s) -

Michael J. Brennan,

Tarun Chordia,

Avanidhar Subrahmanyam,

Qing Tong

Publication year - 2012

Publication title -

journal of financial economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 11.673

H-Index - 256

eISSN - 1879-2774

pISSN - 0304-405X

DOI - 10.1016/j.jfineco.2012.04.006

Subject(s) - market liquidity , equity (law) , business , stock (firearms) , order (exchange) , monetary economics , volatility (finance) , financial economics , economics , finance , mechanical engineering , political science , law , engineering

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility.

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