Stocks Liquiduty Premium in Emerging Markets

This paper investigates influence of liquidity factors on excess return for emerging markets. Plenty of research papers were done for developed markets while very few of them touched upon markets with emerging economy. Our analysis investigates such liquidity factors as quoted bid-ask spread, relative and absolute turnover and Hui-Heubel ratio for 4 countries – Russia, Turkey, Poland and Mexico for the time period starting at January 2007 and ending at December 2016. Using CAPM model modified with size effect and liquidity factors 3 models for each country were analyzed. Due to the fact that our time period included global financial crisis test on homogeneity of the sample were also conducted which resulted in necessity of separating the sample in 2 based on crisis years – 2008 and 2009. Result we got on turnover ratio, size effect and Hui-Heubel ratio were surprising going against results on developed markets by AMihud and Mendelson (1986) and Datar, Naik and Redcliffe (1998) stating that turnover and size have negative effect on excess return. While our results stated reverse results which were supported by findings of Claessens et al. (1998) who found that for emerging market these factors can have difference impact on excess return. Dividing the sample into 2 we found that in crisis years the importance of liquidity factors increases which says about investors demanding higher compensation for bearing this kind of risk.