The impact of short-sales constraints on liquidity and the liquidity-return relations
Journal
Pacific Basin Finance Journal
Journal Volume
18
Journal Issue
5
Pages
521
Date Issued
2010-11-01
Author(s)
Lee, Hsiu Chuan
Abstract
Baker and Stein's (2004) model predicts that individual stock liquidity, commonality in liquidity across stocks, the contemporaneous correlation between stock returns and liquidity, and the degree of high liquidity associated with low subsequent stock returns decrease in the absence of short-sales constraints relative to in the presence. To test these theoretical predictions, we examine both the component stocks of the Taiwan 50 index and other nonindex stocks for the sample period before and after the removal of short-sales constraints on the former and use trading turnover and Amihud's (2002) illiquidity ratio as the measure of liquidity to proxy for investor sentiment. Overall, our empirical results are consistent with these theoretical predictions and therefore provide evidence in support of Baker and Stein's (2004) model. © 2010.
Subjects
Commonality | G10 | G12 | Liquidity | Sentiment indicator | Short-sales constraints
Publisher
ELSEVIER SCIENCE BV
Type
journal article