Predicting Asset Return with Liquidity

Student: Abramov Ivan

Supervisor: Sergey Victorovich Gelman

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Year of Graduation: 2016

The paper propounds relation between future short-term returns and liquidity measures. Conducted empirical analysis is based on the reasoning from market microstructure. It partially confirms the suggested hypothesis of positive relation between future stock return and elasticity measures for both ask and bid side of the LOB. So expected future return is positive if the ask slope is steeper than the bid one. Moreover, increase in steepness of the ask elasticity increase the return and vice versa for the bid elasticity. My result is robust to the choice of methodology as well as method for calculating elasticities.

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