Journal of Financial Economics Vol. 105 No. 3 2012

Sell-order liquidity and the cross-section of expected stock returns

Michael J. Brennan^1,2,3; Tarun Chordia⁴; Avanidhar Subrahmanyam¹; Qing Tong⁵

¹ University of California, Los Angeles · ² King Abdulaziz University · ³ Manchester School of Architecture · ⁴ Emory University · ⁵ Singapore Management University

Abstract

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in equities emanates predominantly from the sell-order side. We also find that the average difference between sell and buy lambdas is generally positive throughout our sample period. Both buy and sell lambdas are significantly positively correlated with measures of funding liquidity such as the TED spread as well option implied volatility.

DOI

10.1016/j.jfineco.2012.04.006

Volume

105

Issue

3

Pages

523-541

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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