عنوان

Systematic liquidity risk and stock price reaction to large one-day price changes :

Number

TLets553954

Title Proper

Systematic liquidity risk and stock price reaction to large one-day price changes :

General Material Designation

[Thesis]

First Statement of Responsibility

Alrabadi, Dima Waleed Hanna

Title Proper by Another Author

evidence from London Stock Exchange

Subsequent Statement of Responsibility

Mazouz, Khelifa.

Name of Publisher, Distributor, etc.

University of Bradford

Date of Publication, Distribution, etc.

2009

Dissertation or thesis details and type of degree

Thesis (Ph.D.)

Text preceding or following the note

2009

Text of Note

This thesis investigates systematic liquidity risk and short-term stock price reaction to large one-day price changes. We study 642 constituents of the FTSALL share index over the period from 1st July 1992 to 29th June 2007. We show that the US evidence of a priced systematic liquidity risk of Pastor and Stambaugh (2003) and Liu (2006) is not country-specific. Particularly, systematic liquidity risk is priced in the London Stock Exchange when Amihud's (2002) illiquidity ratio is used as a liquidity proxy. Given the importance of systematic liquidity risk in the asset pricing literature, we are interested in testing whether the different levels of systematic liquidity risk across stocks can explain the anomaly following large one-day price changes. Specifically, we expect that the stocks with high sensitivity to the fluctuations in aggregate market liquidity to be more affected by price shocks. We find that most liquid stocks react efficiently to price shocks, while the reactions of the least liquid stocks support the uncertain information hypothesis. However, we show that time-varying risk is more important than systematic liquidity risk in explaining the price reaction of stocks in different liquidity portfolios. Indeed, the time varying risk explains nearly all of the documented overreaction and underreaction following large one-day price changes. Our evidence suggests that the observed anomalies following large one-day price shocks are caused by the pricing errors arising from the use of static asset pricing models. In particular, the conditional asset pricing model of Harris et al. (2007), which allow both risk and return to vary systematically over time, explain most of the observed anomalies. This evidence supports the Brown et al. (1988) findings that both risk and return increase in a systematic fashion following price shocks.

Systematic liquidity risk ; Asset pricing ; Large one-day price changes ; Time-varying risk ; S-GARCH ; Efficient market hypothesis ; Underreaction ; Overreaction ; London Stock Exchange ; Stock prices

Alrabadi, Dima Waleed Hanna

Mazouz, Khelifa.

University of Bradford

Electronic name

p

[Thesis]

276903

a

Y