Liquidity Shocks and Stock Market Reactions

• 成果类型: Article
• 署名作者: Bali, Turan G.; Peng, Lin; Shen, Yannan; Tang, Yi
• 署名单位: Georgetown University; City University of New York (CUNY) System; Baruch College (CUNY); Bentley University; Fordham University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht074
• 发表日期: 2014
• 页码: 1434
• 关键词: EARNINGS-ANNOUNCEMENT DRIFT; cross-section; limited attention; returns; RISK; volatility; news; illiquidity; BEHAVIOR; prices

摘要

We find that the stock market underreacts to stock-level liquidity shocks: liquidity shocks are not only positively associated with contemporaneous returns, but they also predict future return continuations for up to six months. Long-short portfolios sorted on liquidity shocks generate significant returns of 0.70% to 1.20% per month that are robust across alternative shock measures and after controlling for risk factors and stock characteristics. Furthermore, we show that investor inattention and illiquidity contribute to the underreaction: while both are significant in explaining short-term return predictability of liquidity shocks, the inattention-based mechanism is more powerful for the longer-term return predictability.