6533b7d2fe1ef96bd125e933
RESEARCH PRODUCT
Illiquidity Risk and the Long-Run Underperformance of Seasoned Equity Issues in the Spanish Market
Ana M. IbáñezJosé Emilio Farinós ViñasC. José Garcíasubject
Financial economicsPotential riskEquity (finance)Expected returnLiquidity crisisBusinessLiquidity riskLiquidity premiumThree factor modelMarket liquiditydescription
This paper presents new evidence on potential risk-based explanations for the low SEO returns in the year after the issue. Specifically, we analyse whether the issue leads to a long-term higher stock liquidity that implies that SEO stocks have lower expected return due to lower exposure to liquidity risk factor. Therefore, we investigate if Spanish SEO firms experience significant changes in long-term liquidity after the issue. Results suggest that SEO-firm liquidity increases significantly in the year after the issue. Finally, we explore the post-performance of SEO firms explicitly accounting for liquidity risk. In particular, we employ the three factor model by Fama and French (1993) extended in one additional liquidity factor based on the illiquidity measure proposed by Amihud (2002). Our results show that underperformance disappears when accounting for liquidity risk.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2008-01-01 | SSRN Electronic Journal |