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Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio

Gregoriou, Andros; Florackis, Chris; Kostakis, Alexandros

Authors

Andros Gregoriou

Chris Florackis

Alexandros Kostakis



Abstract

This study proposes a new price impact ratio as an alternative to the widely used Amihud's (2002) Return-to-Volume ratio. We demonstrate that the new price impact ratio, which is deemed Return-to-Turnover ratio, has a number of appealing features. Using daily data from all stocks listed on the London Stock Exchange over the period 1991-2008, we provide overwhelming evidence that this ratio, while being unequivocal to construct and interpret, is also free of a size bias. More importantly, it encapsulates the stocks' cross-sectional variability in trading frequency, a relatively neglected but possibly important determinant of stock returns given the recently observed trends in financial markets. Overall, our findings argue against the conventional wisdom that there is a simple direct link between trading costs and stock returns by strongly suggesting that it is the compound effect of trading frequency and transaction costs that matters for asset pricing, not each aspect in isolation. © 2011 Elsevier B.V.

Citation

Gregoriou, A., Florackis, C., & Kostakis, A. (2011). Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio. Journal of Banking and Finance, 35(12), (3335-3350). doi:10.1016/j.jbankfin.2011.05.014. ISSN 0378-4266

Journal Article Type Article
Acceptance Date May 16, 2011
Online Publication Date May 20, 2011
Publication Date Dec 1, 2011
Deposit Date Nov 13, 2014
Journal Journal Of Banking & Finance
Print ISSN 0378-4266
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 35
Issue 12
Pages 3335-3350
DOI https://doi.org/10.1016/j.jbankfin.2011.05.014
Keywords Economics and Econometrics; Finance
Public URL https://hull-repository.worktribe.com/output/465667
Publisher URL https://www.sciencedirect.com/science/article/pii/S0378426611001750?via%3Dihub