The relationship between liquidity and stock returns : A case study of listed firms on Ho Chi Minh stock exchange (HOSE)
Abstract
With the overall purpose of studying the relationship between liquidity and
stock returns in Vietnam during the period from 2008 to 2012, this thesis used Ho Chi
Minh Stock Exchange Stock as a case study to examine whether liquidity affect stock
returns. This has a remarkable implications for studying stock liquidity, as choosing an
optimal proxy of liquidity is a considerable purpose in empirical research. Trading
volume is chosen as proxy of liquidity in this research. Statistical sample of this study
is 202 listed firms on HOSE. This study adopts the factor mimicking approach of FamaFrench Three-Factors model (1993, 1996) to test the presence of any liquidity medium.
Weekly excess stock returns are used in the analysis. Nine portfolios are constructed
according to size and liquidity of firms in order to explain the variations on excess
portfolio returns by using liquidity factors and two controlled variable of market risk
and firm size factor. The finding shows that liquidity is also an important variable to
explain excess stock returns beside overall risk market and size factor. The finding
supports for a broader asset-pricing model with multiple risk factor and shows that
small and less liquid firms generate higher returns.