Price Impact or Trading Volume: Why Is the Amihud (2002) Measure Priced?

Xiaoxia Lou; Tao Shu

doi:10.1093/rfs/hhx072

Price Impact or Trading Volume: Why Is the Amihud (2002) Measure Priced?

¹ Alfred Lerner College of Business, University of Delaware · ² Terry College of Business, University of Georgia HKUST Business School

Review of Financial Studies 2017

The return premium associated with the Amihud (2002) measure is generally considered a liquidity premium that compensates for price impact. We find that the pricing of the Amihud measure is not attributable to the construction of the return-to-volume ratio intended to capture price impact, but is driven by the trading volume component. Additionally, the high-frequency price impact and spread benchmarks are priced only in January and do not explain the pricing of the trading volume component of the Amihud measure. Additional analyses suggest that the volume effect on stock return is likely caused by mispricing, not by compensation for illiquidity. Received September 20, 2014; editorial decision April 16, 2017 by Editor Andrew Karolyi.

DOI: 10.1093/rfs/hhx072
Volume: 30 (12)
Pages: 4481-4520
Language: en
Export: BibTeX
Sources: crossref openalex