Analysis Of The Relationship Between Stock Liquidity And Stock Expected Return

This paper discusses the possible relationship between stock liquidity and stock returns,and finds that the company’s stock liquidity has significant predictive ability for subsequent stock returns.The indicator used in this paper to measure liquidity is built with reference to the illiquidity indicator of Amihud(2002).When the asset pricing factors in the Fama-french(1993)three-factor model are controlled,stock liquidity can also predict the subsequent return of stocks well.For companies with higher total asset turnover,higher cash quality,and higher levels of leverage,the positive relationship between stock liquidity and expected stock returns is often more significant.This paper studies the relationship between expected stock returns and equity value and the level of company leverage,and through empirical analysis,it is found that companies with higher stock liquidity will increase their equity value and leverage,thereby generating higher expected returns on stocks.After additional control of the quality of cash flow,profitability,asset turnover,leverage level,and the number of price limit-ups and limit-downs,stock liquidity is still significant in predicting stock returns,which means that stock liquidity is another powerful factor in the expected return of stocks.The decisive factor is not the embodiment of cash flow quality,profitability,asset turnover,leverage level,and reversal effect.This paper also studies how the relationship between stock liquidity and stock expected returns is affected by the levels of various factors.This paper found that companies with highquality cash flow,high asset turnover,high profitability,high leverage,and more price limit-downs in the past year have stronger relationships between stock liquidity and expected stock returns.In the robustness test of this paper,it is proved that stock liquidity has obvious ability to predict stock returns,but the company’s scale effect,book-to-market value ratio,and momentum effect cannot explain the predictive ability of stock liquidity.In addition,domestic stock yields show a clear reversal effect.