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Asset Liquidity and Stock Liquidity

Published online by Cambridge University Press:  24 January 2012

Radhakrishnan Gopalan ,
Ohad Kadan  and
Mikhail Pevzner
Radhakrishnan Gopalan
Affiliation:
Olin Business School, Washington University in St. Louis, Campus Box 1133, St. Louis, MO 63130. [email protected], [email protected]
Ohad Kadan
Affiliation:
Olin Business School, Washington University in St. Louis, Campus Box 1133, St. Louis, MO 63130. [email protected], [email protected]
Mikhail Pevzner
Affiliation:
School of Management, George Mason University, 4400 University Dr., MS 5F4, Fairfax, VA 22030. [email protected]
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Abstract

We study the relation between asset liquidity and stock liquidity. Our model shows that the relation may be either positive or negative depending on parameter values. Asset liquidity improves stock liquidity more for firms that are less likely to reinvest their liquid assets (i.e., firms with less growth opportunities and financially constrained firms). Empirically, we find a positive and economically large relation between asset liquidity and stock liquidity. Consistent with our model, the relation is more positive for firms that are less likely to reinvest their liquid assets. Our results also shed light on the value of holding liquid assets.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 2 , April 2012 , pp. 333 - 364
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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