THE ROLE OF LIQUIDITY FACTOR IN EXPLAINING THE STOCK RETURNS: NEW EVIDENCE FROM TEHRAN STOCK EXCHANGE

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TALANEH ABDOLREZA; HOSSEINI MEYNOOSH

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Paper Information

Journal: THE IRANIAN ACCOUNTING AND AUDITING REVIEW Year:2015 | Volume:22 | Issue:3 Page(s): 337-362

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Information Journal Paper

Title

THE ROLE OF LIQUIDITY FACTOR IN EXPLAINING THE STOCK RETURNS: NEW EVIDENCE FROM TEHRAN STOCK EXCHANGE

Author(s)

TALANEH ABDOLREZA | HOSSEINI MEYNOOSH

Keywords

FAMA-FRENCH THREE-FACTOR MODELQ2

LIQUIDITYQ2

LIU'S TWO-FACTOR MODELQ2

Abstract

This paper examines the role of LIQUIDITY factor in explaining the cross-section of stock returns of firms listed on Tehran Stock Exchange. The regression results of CAPM, LIU'S TWO-FACTOR MODEL, the FAMA-FRENCH THREE-FACTOR MODEL, and a Four-factor model in eight portfolios formed by Size, BIM Ratio, and LIQUIDITY show that the two-factor (market and LIQUIDITY) model outperforms the CAPM in explaining the cross-section of stock returns but not the FAMA-FRENCH THREE-FACTOR MODEL. Adding LIQUIDITY premium to FAMA-FRENCH THREE-FACTOR MODEL notably improves the adjusted R square of the model implying that all four factors of market, size, value, and LIQUIDITY play a significant role in explaining stock returns. The results are robust to sensitivity analyses for up and down market conditions and seasonal behavior.

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APA: Copy

TALANEH, ABDOLREZA, & HOSSEINI, MEYNOOSH. (2015). THE ROLE OF LIQUIDITY FACTOR IN EXPLAINING THE STOCK RETURNS: NEW EVIDENCE FROM TEHRAN STOCK EXCHANGE. THE IRANIAN ACCOUNTING AND AUDITING REVIEW, 22(3), 337-362. SID. https://sid.ir/paper/8215/en

Vancouver: Copy

TALANEH ABDOLREZA, HOSSEINI MEYNOOSH. THE ROLE OF LIQUIDITY FACTOR IN EXPLAINING THE STOCK RETURNS: NEW EVIDENCE FROM TEHRAN STOCK EXCHANGE. THE IRANIAN ACCOUNTING AND AUDITING REVIEW[Internet]. 2015;22(3):337-362. Available from: https://sid.ir/paper/8215/en

IEEE: Copy

ABDOLREZA TALANEH, and MEYNOOSH HOSSEINI, “THE ROLE OF LIQUIDITY FACTOR IN EXPLAINING THE STOCK RETURNS: NEW EVIDENCE FROM TEHRAN STOCK EXCHANGE,” THE IRANIAN ACCOUNTING AND AUDITING REVIEW, vol. 22, no. 3, pp. 337–362, 2015, [Online]. Available: https://sid.ir/paper/8215/en

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