Journal of Financial Economics Vol. 80 No. 2 2006
Momentum and post-earnings-announcement drift anomalies: The role of liquidity risk
Abstract
This paper investigates the components of liquidity risk that are important for understanding asset-pricing anomalies. Firm-level liquidity is decomposed into variable and fixed price effects and estimated using intraday data for the period 1983–2001. Unexpected systematic (market-wide) variations of the variable component rather than the fixed component of liquidity are shown to be priced within the context of momentum and post-earnings-announcement drift (PEAD) portfolio returns. As the variable component is typically associated with private information [e.g., Kyle, 1985. Econometrica 53, 1315–1335], the results suggest that a substantial part of momentum and PEAD returns can be viewed as compensation for the unexpected variations in the aggregate ratio of informed traders to noise traders.
- DOI
- 10.1016/j.jfineco.2005.04.005
- Volume
- 80
- Issue
- 2
- Pages
- 309-349
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref