Liquidity Risks and Asset Pricing in Asian Stock Markets
The main purpose of doing the study is to examine the pricing of liquidity risks in Asian stock markets. The current study is a deductive study that empirically tests the un- conditional version of liquidity adjusted capital asset pricing model developed by Acharya and Pedersen (2005). Multiple measures of liquidity including Amihud ratio, Amivest liquidity, Hui-Heubel liquidity ratio, Market efficiency coefficient, zero return, turnover and Roll estimator have been used for measuring multidimensional liquidity. The current study investigates the influence of different types of liquidity risks including commonality in liquidity, Flight to liquidity and depressed wealth eect on equity returns of Asian stock markets including Japan, Pakistan, India, China and Thailand during 2005-2015. For the estimation of liquidity risks xed effect panel regression has been employed in the study. Moreover liquidity adjusted Capital asset pricing model is based upon the developed market. The study attempts to investigate that this model can be or cannot be implied in its original form in emerging markets of Asia. The study also identies the gray area in the model that needs to be addressed for its better implication in Asian emerging markets. The ndings of the study support that individual and aggregate liquidity risks are priced in Asian stock markets and investors are compensated for the wealth shocks and decline in stock and market liquidity. The flight to liquidity risks is least prominent in Asian stock market among the individual liquidity risks. The results of the study are also sensitive to liquidity measures selected for the study.