Liquidity risk in stock returns: An event-study perspective

Quanwei Cao, Lubomir Petrasek

Research output: Contribution to journalArticlepeer-review

22 Scopus citations


We examine in an event-study context what factors affect the relative performance of stocks during liquidity crises. We find that market risk, measured by the market beta, is not a good measure of expected abnormal stock returns on days with liquidity crises. Instead, abnormal stock returns during liquidity crises are strongly negatively related to liquidity risk, measured by the co-movement of stock returns with market liquidity. The degree of informational asymmetry and the ownership structure of the firm also help to explain abnormal stock returns on crisis days. Our findings have important implications for managing the liquidity risk of equity portfolios.

Original languageEnglish (US)
Pages (from-to)72-83
Number of pages12
JournalJournal of Banking and Finance
Issue number1
StatePublished - Jan 1 2014

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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