Hasnaoui Habib and Ben Arab Mounira
The empirical work on liquidity and stock returns supports the existence of a liquidity effect. Accordingly, this paper empirically analyses whether Tunisian average stock returns vary with liquidity risk factors: The aggregated bid-ask spread and the Amihud (2002) price impact measure. From 2002 through 2007, in contrast to previous works, our empirical results on the emerging Tunisian Stock Market (TSM) show that the liquidity factor is not priced either in portfolio sorting approach neither in cross-section regressions, after adjusting for exposures to the market return as well as size an value. We also found that sorting stocks according to liquidity is not likely to generate average returns greater than those on passive combinations of the mimicking returns for risk factors.
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