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A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
Research Collection Lee Kong Chian School Of Business
This paper investigates the liquidity effect in asset pricing by studying the liquidity-premium relationship of an American depositary receipt (ADR) and its underlying share. Using the [Amihud, Yakov, 2002. Illiquidity and stock returns: cross-section and time series effects. Journal of Financial Markets 5, 31-56] measure, the turnover ratio and trading infrequency as proxies for liquidity, we show that a higher ADR premium is associated with higher ADR liquidity and lower home share liquidity, in terms of changes in these variables. We find that the liquidity effects remain strong after we control for firm size and a number of country characteristics, …