The role of illiquidity risk factor in asset pricing models: Malaysian evidence

Ruzita Abdul Rahim, and Abu Hassan Shhari Mohd. Nor, (2007) The role of illiquidity risk factor in asset pricing models: Malaysian evidence. Jurnal Pengurusan, 26 . pp. 67-97. ISSN 0127-2713


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This paper examines the role of illiquidity risk factor in asset Pricing through two variants of liquidity-based three-factor models, referred as SiLiq and DiLiq, which are developed in the context of Fama-French model. The sample comprises 230 to 480 firms which stocks are listed on Bursa Malaysia over the period of January 1987 to December 2004. To proxy for liquidity, this study tests six alternative measures based on trading volume variables, namely dollar volume (DVOL), share turnover (TURN), Illiquidity (ILLIQ), and the coefficient of variations of each of these variables (CVDVOL" cVrURN" and cVILLIQ. The preliminary results indicate that the illiquidity risk factors (L M H) that are formed from TURN consistently outperform the other alternatives as they explain as high as 36 percent variations in stock returns. The results of multiple time series regressions lend strong support for the hypothesis that illiquidity risk are priced, particularly when is LMH incorporated in DiLiq.

Item Type:Article
Keywords:illiquidity risk factors
Journal:Jurnal Pengurusan
ID Code:8075
Deposited By: stud01
Deposited On:28 Nov 2014 19:32
Last Modified:14 Dec 2016 06:46

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