Yes / This paper examines a new channel through which dividend policy can affect firm value. We find that firms that pay dividends exhibit lower systematic liquidity risk than those that do not. We also report a significant negative relationship between dividend payment and systematic liquidity risk. The liquidity improvement associated with dividend payments translates into an economically meaningful reduction in the cost of equity capital. Our results are robust to endogeneity concerns, to alternative measures of liquidity risk and dividend payouts, and to alternative model specifications. Further analysis suggests that the reduction in liquidity risk associated with dividend payouts is more pronounced for weakly governed firms and firms with opaque informational environment. Finally, we find that the recent financial crisis led to a greater increase in systematic liquidity risk for firms with no or low dividend payouts. Overall, our study implies that dividend policy can be used by corporate managers to shape liquidity risk and mitigate the adverse impact of economic downturns on the value of their firms.

Investors have historically demanded a return premium for taking on the risk of illiquidity both in terms of characteristic and systematic liquidity risk. Recent research have presented results suggesting that the liquidity premium is diminishing. The increasing popularity of passive investments such as Exchange Traded Funds (ETFs) have been proposed as a driving force for the declining trend. Despite the popularity of ETFs, there is limited research how they impact the financial markets. The purpose of this thesis is to investigate how the liquidity premium has developed in the United States between 1997 and 2016 and to explore if developments in the liquidity premium can be linked to the capital inflow to the United States ETF market. The thesis uses measures of stocks’ spreads and order book depths as proxies for the characteristic and systematic liquidities. The proxies are used to test if liquidity has influenced stock returns over 1-year, 5-years and the entire 20-year period. The empirical results obtained through Fama-MacBeth regressions show that the liquidity premium can fluctuate by both sign and magnitude year by year. The characteristic risk premium is negative and significant for the entire 20-year period and the 1-year regressions suggests a clear negative trend. The systematic liquidity premium on the other hand is positive and significant for the entire 20-year period but the 1-year regressions do not show a clear trend. The empirical results show no statistical significance that ETFs influence the liquidity premium. However, the graphical interpretation of the 1-year regressions suggests that the characteristic liquidity premium is negatively correlated with the growth of ETFs. The negative characteristic premium implies that investors are not being adequately compensated for the risk of illiquidity and should therefore avoid a liquidity-based investing strategy which has generated excess return in the past.

Dividend policy, its determinants, and its impact on firm value are of significant academic interest, and many theories and explanations have been posited on the subject over the years, but there has not been a universal agreement. This thesis examines the links between dividend policy, various aspects of stock liquidity and price informativeness. We study a sample of UK firms over the period from 1996-2013. We show that, on average, stocks of dividend payers have significantly lower bid–ask spread and a lower illiquidity ratio than their counterparts of non-dividend payers. We also find that stocks of high-dividend payers are more liquid than those of firms that pay low or no dividends. These findings are consistent with the predictions of asymmetric information that posit that paying dividends reveals inside information to the market and hence decreases the level of asymmetric information, leading to higher stock liquidity. In the subsequent analysis, we suggest and examine a new channel through which dividend policy can impact firm value. Specifically, we show that dividend payers are less exposed to shocks in the aggregate market liquidity than non-dividend payers. Similarly, we find that the systematic liquidity risk is negatively associated with amount of dividends. Finally, in the context of signalling and agency costs models, we show that dividends are negatively related to stock price informativeness and that this relationship is stronger for firms with lower stock liquidity. The findings imply that dividend policy can both affect and be affected by stock markets.

Emerging ESG studies have established a negative equilibrium correlation between ESG factors and stock returns in an economy predominately influenced by investors with nonpecuniary preference over high ESG credentials. However, little research has delved into a potential systematic liquidity risk phenomenon associated with aggregate trading activities of ESG-motivated investors who share a common nonzero ESG preference component in their utility function. Focusing on the carbon footprint metric of ESG factors, this thesis aims to investigate the potential existence of an ESG-specific component in liquidity commonality among equities listed on Nasdaq Stockholm, with a key assumption being that the average investor active on the Swedish equity market is cognizant of emission data and willing to forgo financial returns for positive externalities. Using a calibrated portfolio sorting technique and a set of time series regression models, the thesis uncovers novel evidence of liquidity synchronicity among ESG-unfavorable stocks. Additionally, the results indicate that liquidity dynamics of ESG frontrunners tend to be reflective of firm level characteristics. These findings remain robust even after controlling for market-wide driving forces, industry effects, and nonsynchronous liquidity co-movements etc. Investors prioritizing climate efforts may have tilted their capital away from emission laggards which give rise to a “flight to climate” effect on stock liquidity synchronicity among brown equities. Their resultant constrained investor base may lead to simultaneous liquidity oscillation as observed. Notwithstanding, the thesis does not measure explicit mechanisms through which ESG factors impact stock liquidity commonality, leaving this as a topic for future research.

Dividend policy, its determinants, and its impact on firm value are of significant academic interest, and many theories and explanations have been posited on the subject over the years, but there has not been a universal agreement. This thesis examines the links between dividend policy, various aspects of stock liquidity and price informativeness. We study a sample of UK firms over the period from 1996-2013. We show that, on average, stocks of dividend payers have significantly lower bid–ask spread and a lower illiquidity ratio than their counterparts of non-dividend payers. We also find that stocks of high-dividend payers are more liquid than those of firms that pay low or no dividends. These findings are consistent with the predictions of asymmetric information that posit that paying dividends reveals inside information to the market and hence decreases the level of asymmetric information, leading to higher stock liquidity. In the subsequent analysis, we suggest and examine a new channel through which dividend policy can impact firm value. Specifically, we show that dividend payers are less exposed to shocks in the aggregate market liquidity than non-dividend payers. Similarly, we find that the systematic liquidity risk is negatively associated with amount of dividends. Finally, in the context of signalling and agency costs models, we show that dividends are negatively related to stock price informativeness and that this relationship is stronger for firms with lower stock liquidity. The findings imply that dividend policy can both affect and be affected by stock markets. / University of Bradford

This thesis investigates systematic liquidity risk and short-term stock price reaction to large one-day price changes. We study 642 constituents of the FTSALL share index over the period from 1st July 1992 to 29th June 2007. We show that the US evidence of a priced systematic liquidity risk of Pastor and Stambaugh (2003) and Liu (2006) is not country-specific. Particularly, systematic liquidity risk is priced in the London Stock Exchange when Amihud's (2002) illiquidity ratio is used as a liquidity proxy. Given the importance of systematic liquidity risk in the asset pricing literature, we are interested in testing whether the different levels of systematic liquidity risk across stocks can explain the anomaly following large one-day price changes. Specifically, we expect that the stocks with high sensitivity to the fluctuations in aggregate market liquidity to be more affected by price shocks. We find that most liquid stocks react efficiently to price shocks, while the reactions of the least liquid stocks support the uncertain information hypothesis. However, we show that time-varying risk is more important than systematic liquidity risk in explaining the price reaction of stocks in different liquidity portfolios. Indeed, the time varying risk explains nearly all of the documented overreaction and underreaction following large one-day price changes. Our evidence suggests that the observed anomalies following large one-day price shocks are caused by the pricing errors arising from the use of static asset pricing models. In particular, the conditional asset pricing model of Harris et al. (2007), which allow both risk and return to vary systematically over time, explain most of the observed anomalies. This evidence supports the Brown et al. (1988) findings that both risk and return increase in a systematic fashion following price shocks.

本文以1997年6月至2016年7月臺灣上櫃股票市場做為研究樣本，透過建立一Bivariate Diagonal BEKK GARCH (1,1)-in-mean模型，並以大盤週轉率形成之總合流動性指標與大盤超額報酬率之共變異數做為系統流動性風險之衡量指標，觀察系統流動性風險在臺灣上櫃股票市場是否有被訂價。結論除發現系統流動性風險有確實被訂價外，系統流動性風險溢價還兼具穩定性，且對市場超額報酬率有顯著的影響力。 / By constructing a bivariate diagonal BEKK Garch (1,1)-in-mean model and using the covariance between the excess market return and turnover rate as aggregate systematic liquidity proxy, the study tries to examine whether systematic liquidity risk was priced on Taiwan OTC stock market during the period of June 1997-July 2016. Based on monthly data, the findings suggest that not only the systematic liquidity risk was well priced on Taiwan OTC stock market, but the phenomenon also possessed stability and could have significant impact on stock returns.

This thesis investigates systematic liquidity risk and short-term stock price reaction to large one-day price changes. We study 642 constituents of the FTSALL share index over the period from 1st July 1992 to 29th June 2007. We show that the US evidence of a priced systematic liquidity risk of Pastor and Stambaugh (2003) and Liu (2006) is not country-specific. Particularly, systematic liquidity risk is priced in the London Stock Exchange when Amihud's (2002) illiquidity ratio is used as a liquidity proxy. Given the importance of systematic liquidity risk in the asset pricing literature, we are interested in testing whether the different levels of systematic liquidity risk across stocks can explain the anomaly following large one-day price changes. Specifically, we expect that the stocks with high sensitivity to the fluctuations in aggregate market liquidity to be more affected by price shocks. We find that most liquid stocks react efficiently to price shocks, while the reactions of the least liquid stocks support the uncertain information hypothesis. However, we show that time-varying risk is more important than systematic liquidity risk in explaining the price reaction of stocks in different liquidity portfolios. Indeed, the time varying risk explains nearly all of the documented overreaction and underreaction following large one-day price changes. Our evidence suggests that the observed anomalies following large one-day price shocks are caused by the pricing errors arising from the use of static asset pricing models. In particular, the conditional asset pricing model of Harris et al. (2007), which allow both risk and return to vary systematically over time, explain most of the observed anomalies. This evidence supports the Brown et al. (1988) findings that both risk and return increase in a systematic fashion following price shocks. / Yarmouk University, Jordan.

自2000年來，學術界開始廣泛地討論系統流動性風險因子以及非流動性因子是否在資產評價上有重要的影響，尤其在最近的金融危機中，市場的流動性風險應該如何被衡量及量化也是實務上重視的課題。不同於傳統的市場微結構模型，著重在衡量個股的流動性以及非流動性，本文嘗試以系統流動性評價模型建構流動性風險因子及非流動性因子來衡量整體市場的流動性，並探討市場流動性如何應用在資產評價上。 在Lee, Lin, Lee, and Tsao (2006)研究中，嘗試分析台灣市場個別股票流動性的共同因素(common factor)，並已得到確切的結論。然而此一系統性的流動風險因子尚未應用在資產評價模型上。本文在建構市場的流動性以及市場的非流動性兩個因子之後，並用以評價市場的股票報酬，結果發現若以市場流動性因子評估，則持有對市場流動性衝擊(liquidity shock)具有高度敏感性的股票(Beta>0)並同時賣出低敏感性的股票(Beta<0)，將會得到顯著的異常報酬。另一方面，若以市場非流動性因子衡量，則持有非流動性較高的股票並同時賣出非流動性較低的股票，也會得到顯著的異常報酬。 / Market-wide liquidity drain has aroused grave concerns in the recent financial tumult and prompted a number of academics to query how much the liquidity risk is incorporated into the pricing of those assets that are blamed for the recent financial collapse. Though this market-wide liquidity risk factor has started being acknowledged as a key component of asset pricing models, it has not yet been applied to Taiwan’s financial market. Based on the commonality in liquidity is confirmed by Lee, Lin, Lee, and Tsao (2006) in the Taiwan’s stock market, this study is the first one to include systematic liquidity factor in asset pricing model. Two different dimensions are employed due to liquidity is an elusive characteristic to measure. This study intends to measure the degree of liquidity shock and illiquidity characteristic that afflicts Taiwan’s stock market by looking into temporary price changes accompanying the order flow in the lag period and the trading volume in the contemporaneous period. Stock excess return has always been considered a compensation for risk. This study also explores whether excess return reflects compensation of market-wide liquidity, and provides evidences that the premium for systematic liquidity shock factor and illiquidity factor in the Taiwan’s stock market are all significant.