Market Liquidity and Momentum Profits : Evidence from the Korean Stock Market

Q4 Economics, Econometrics and Finance
Changha Kim, Changjun Lee
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引用次数: 5

Abstract

Previous literature in the Korean stock market has shown that the momentum effect is not observed during pre-2000 period while it is observed during post-2000 period. Given that market illiquidity has substantially decreased during post-2000 period, we examine whether the level of market illiquidity affect the momentum profits. The central findings are summarized as follows. First, our full-sample analysis shows that market liquidity is positively associated with momentum profits, meaning that the observed momentum effect during post-2000 period is related to the decrease in market illiquidity. Second, during pre-2000 period, when the market illiquidity is very high, the illiquidity of past losers is extremely high compared to that of past winners. However, there is no significant difference in illiquidity between winners and losers during post-2000 period. Third, based on this result, we conjecture that the momentum effect is related to the different compensation for liquidity risk between past losers and winners, and test whether this is indeed the case. We find significant momentum profits over the whole period when we consider the compensation for the liquidity risk of past losers and winners. In addition, during pre-2000 period, the return on momentum strategy that controls the liquidity risk is substantially higher than the actually observed momentum profits. In sum, our study suggests that the difference in compensation for liquidity risk between past losers and winners is very important in understanding the momentum effect in the Korean stock market.
市场流动性和动量利润:来自韩国股市的证据
韩国股市以往的文献表明,动量效应在2000年之前不存在,而在2000年之后存在。鉴于2000年后市场非流动性大幅下降,我们研究了市场非流动性水平是否影响动量利润。主要研究结果总结如下。首先,我们的全样本分析表明,市场流动性与动量利润呈正相关,这意味着2000年后观察到的动量效应与市场非流动性的减少有关。其次,在2000年之前,当市场流动性非常高时,过去的输家的流动性异常高,而过去的赢家的流动性异常高。然而,2000年后,赢家和输家之间的非流动性没有显著差异。第三,基于这一结果,我们推测动量效应与过去输家和赢家对流动性风险的不同补偿有关,并检验是否确实如此。当我们考虑对过去输家和赢家的流动性风险的补偿时,我们发现整个时期都有显著的动量利润。此外,在2000年之前,控制流动性风险的动量策略的收益大大高于实际观察到的动量利润。总之,我们的研究表明,过去的输家和赢家对流动性风险的补偿差异对于理解韩国股市的动量效应非常重要。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
1.30
自引率
0.00%
发文量
13
审稿时长
8 weeks
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