Liquidity and illiquidity in the brazilian market: performance from 1995 to 2005 and its relations to the return

Autores/as

  • Kelmara Mendes Vieira
  • Felipe Tavares Milach

Resumen

Liquidity is an essential characteristic of the financial market. Its importance is mainly due to its direct relation to the capital cost. Financial policies that increase liquidity can reduce the cost of capital opportunity; furthermore, the lack of liquidity is related to the financial collapse of some emerging economies. Because liquidity is a multidimensional concept, different measures of liquidity are assessed. This paper describes the performance of the liquidity/illiquidity-related measures in the period from January 1995 to June 2005. Based on 12 multiple regression models and using the method proposed by Fama and MacBeth (1973), it intends to test the hypothesis that liquidity is priced. The first six regression models were constructed having as independent variables a measure of liquidity/illiquidity and beta. The following six incorporated the variables market value, volatility and dividend yield into the models. Over the years the Brazilian market presented a significant improvement in its negotiation activity, not only in terms of the quantity of business but also in terms of the financial volume that was negotiated. Most coefficients of the liquidity variable were not significant; only the variables related to illiquidity, illiquidity and spread, were significant. Tests carried out with the exclusion of January showed that the analysis is not significantly affected by the “January effect.”

Key words: liquidity, illiquidity, return, Brazilian stock market.

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Publicado

2021-05-25

Número

Vol. 5 Núm. 1 (2008): jan/apr

Sección

Articles

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