TY - JOUR
T1 - Small Firm Effect, Liquidity and Security Returns
T2 - Australian Evidence
AU - Drew, Michael E.
AU - Marsden, Alastair
AU - Veeraraghavan, Madhu
PY - 2006
Y1 - 2006
N2 - Standard asset pricing models ignore the costs of liquidity. In this study we advance the ongoing debate on empirical asset pricing and test if liquidity costs (as proxied by turnover rate, turnover ratio and bid-ask spread) affect stock returns for Australian stocks. Our tests use the factor portfolio mimicking approach of Fama and French (1993, 1996). We find small and less liquid firms generate positive risk premia after controlling for market returns and firm size. We find no evidence of any seasonal effects that can explain our multifactor asset pricing model findings. In summary, our study provides support for a broader asset pricing model with multiple risk factors.
AB - Standard asset pricing models ignore the costs of liquidity. In this study we advance the ongoing debate on empirical asset pricing and test if liquidity costs (as proxied by turnover rate, turnover ratio and bid-ask spread) affect stock returns for Australian stocks. Our tests use the factor portfolio mimicking approach of Fama and French (1993, 1996). We find small and less liquid firms generate positive risk premia after controlling for market returns and firm size. We find no evidence of any seasonal effects that can explain our multifactor asset pricing model findings. In summary, our study provides support for a broader asset pricing model with multiple risk factors.
KW - asset pricing
KW - closing bid-ask spread
KW - JEL Classification: G120
KW - JEL Classification: G150
KW - Liquidity
KW - turnover
UR - http://www.scopus.com/inward/record.url?scp=85007687622&partnerID=8YFLogxK
U2 - 10.1177/097265270600500202
DO - 10.1177/097265270600500202
M3 - Article
AN - SCOPUS:85007687622
SN - 0972-6527
VL - 5
SP - 135
EP - 149
JO - Journal of Emerging Market Finance
JF - Journal of Emerging Market Finance
IS - 2
ER -