Abstract: Liquidity of the stock exchanges plays essential role on investment decisions and it is one of the factors that may influence on stock price. The easier one can buy/sell shares of a firm, the higher liquidity the firm has. In fact, lack of liquidity may lead investors to sell their assets at cheaper prices and it could influence negatively on overall market. The primary objective of this paper is to study the effect of stock liquidity on the risk of falling stock prices. The study chooses historical information of 70 selected firms listed on Tehran Stock Exchange over the period 2006-2012. The results of this survey have indicated that there was a negative and meaningful relationship between stock liquidity and stock price decline.
How to cite this paper
Moanlogho, M & Madrakian, H. (2015). The effect of stock liquidity on the risk of falling stock prices: Evidence from the Tehran Stock Exchange.Management Science Letters , 5(12), 1059-1066.
Amihud, Y., & Mendelson, H. (1986). Asset pricing and the bid-ask spread.Journal of financial Economics, 17(2), 223-249.
Chordia, T., Sarkar, A., & Subrahmanyam, A. (2005). An empirical analysis of stock and bond market liquidity. Review of Financial Studies, 18(1), 85-129.
Cooper, S. K., Groth, J. C., & Avera, W. E. (1985). Liquidity, exchange listing, and common stock performance. Journal of Economics and Business, 37(1), 19-33.
Datar, V. T., Naik, N. Y., & Radcliffe, R. (1998). Liquidity and stock returns: An alternative test. Journal of Financial Markets, 1(2), 203-219.
Eleswarapu, V. R., & Reinganum, M. R. (1993). The seasonal behavior of the liquidity premium in asset pricing. Journal of Financial Economics, 34(3), 373-386.
Easley, D., O & apos; hara, M., & Srinivas, P. S. (1998). Option volume and stock prices: Evidence on where informed traders trade. The Journal of Finance,53(2), 431-465.
Pastor, L., & Stambaugh, R. F. (2001). Liquidity risk and expected stock returns (No. w8462). National Bureau of Economic Research.