Low liquidity beta anomaly in China

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

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