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Low liquidity beta anomaly in China

Frömmel, Michael; Han, Xing; Li, Youwei; Vigne, Samuel A.

Authors

Michael Frömmel

Xing Han

Samuel A. Vigne



Abstract

The conventional risk-based theory does not reconcile with the liquidity-beta anomaly in China: Low liquidity-beta stocks outperform high liquidity-beta stocks on a risk-adjusted basis. This striking pattern is robust to different weighting schemes, competing factor models, and other well-known return determinants in the cross section. We propose a competing behavioral-based explanation on the low liquidity beta anomaly in China. Consistent with our new perspective, liquidity beta is a negative return predictor in the cross section. Moreover, the time variation of the return differential between low and high liquidity beta stocks is led by investor sentiment after accounting for other possible economic mechanism.

Citation

Frömmel, M., Han, X., Li, Y., & Vigne, S. A. (in press). Low liquidity beta anomaly in China. Emerging markets review, Article 100832. https://doi.org/10.1016/j.ememar.2021.100832

Journal Article Type Article
Acceptance Date May 30, 2021
Online Publication Date Jun 1, 2021
Deposit Date Jun 2, 2021
Publicly Available Date Jun 2, 2022
Journal Emerging Markets Review
Print ISSN 1566-0141
Electronic ISSN 1873-6173
Publisher Elsevier
Peer Reviewed Peer Reviewed
Article Number 100832
DOI https://doi.org/10.1016/j.ememar.2021.100832
Keywords Liquidity; Liquidity beta; Sentiment; Asset pricing; China
Public URL https://hull-repository.worktribe.com/output/3778115

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