Sell-order liquidity and the cross-section of expected stock returns |
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Authors: | Michael J Brennan Tarun Chordia Avanidhar Subrahmanyam Qing Tong |
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Institution: | 1. Anderson School at UCLA, 110 Westwood Plaza, Los Angeles, CA 90095, USA;2. Manchester Business School, UK;3. King Abdulaziz University, Saudi Arabia;4. Goizueta Business School, Emory University, USA;5. Singapore Management University, Singapore |
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Abstract: | 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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Keywords: | G12 G14 |
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