THE RELATIONSHIP BETWEEN THE ASSETS LIQUIDITY AND THE TRADING LIQUIDITY: AN EMPIRICAL INVESTIGATION
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In this paper, we examine the relationship between the liquidity of a firm’s assets and trading liquidity of its stocks. The results show that the higher the firm’s assets liquidity, the lower its stock’s trading liquidity. This relationship does not hold for banks. Bank stocks have lower trading liquidity than other firm’s stocks do. The results are consistent with market microstructure theory and support the paradox of assets liquidity suggested by recent theory. The results may suggest that firms with severe assets substitution and entrenching investment problems may have a different trading behavior of their stocks than those of others.
Abstract
In this paper, we examine the relationship between the liquidity of a firm’s assets and trading liquidity of its stocks. The results show that the higher the firm’s assets liquidity, the lower its stock’s trading liquidity. This relationship does not hold for banks. Bank stocks have lower trading liquidity than other firm’s stocks do. The results are consistent with market microstructure theory and support the paradox of assets liquidity suggested by recent theory. The results may suggest that firms with severe assets substitution and entrenching investment problems may have a different trading behavior of their stocks than those of others.